Delivered in Parliament on 3 November 2020
Mr Speaker, with monetary policy severely limited by near-zero interest rates worldwide, many governments have, appropriately, turned to fiscal policy as the primary mechanism of support for their economies. Singapore has been fortunate; we have been able to rely on our reserves to supplement traditional fiscal policy during this trying time. Of course, prudence dictates that we not only spend wisely, but also carefully examine our revenue streams. This is our fiduciary responsibility to Singaporeans, to be sound stewards of the nation’s fiscal balances and reserve holdings, both today and tomorrow. The Income Tax (Amendment) Bill of 2020 implements the tax changes that were previously discussed and debated in this Government’s Budget Statement, together with a host of supplementary budgets. I wish to offer only a few brief additional remarks on the general spirit underlying some of the Bill’s specificities.
Avoiding tax avoidance
The Bill seeks to further bolster the long-standing stance of minimizing tax avoidance; a number of amendments, in particular to Clauses 30 and 63, explicitly take on avoidance issues. With government expenditures heightened as a result of pandemic-related spending, assuring the integrity of the revenue side of the balance sheet has become even more of an imperative.
That said, perhaps additional clarity as to estimates of how much leakage currently exists would be helpful. Given the rising trend in self-employment and entrepreneurship, has avoidance become more pervasive over time? If so, are there mechanisms—other than the more punitively-oriented surcharges dealt with in this Bill—to better nip avoidance in the bud? Perhaps the Minister would be willing to share if tools in artificial intelligence, designed to identify anomalous patterns in data on individual tax return vis-à-vis bank account flows or credit card usage, are being deployed to better identify such potential arrears.
The Bill also introduces a number of amendments that permit allowances on capital expenditures, such as in Clauses 15, 27, and 56. Such relief is certainly welcome, especially by small and medium enterprises, who are facing unprecedented challenges to keeping their businesses afloat during this time.
However, it is worth noting some seeming discrepancies in the applicable duration for capital taxes. Clause 40, for instance, indicates that deductions for qualified investments are to have occurred between July 2010 and March 2020. In contrast, allowances in Clause 27 are for three years, whereas writeoffs are for two. And most inexplicably, Clause 15 affords profits and capital gains exemptions through till the end of 2027.
Mr Speaker, these discrepancies in the timing of corporate tax relief may well be rationalizable, but I would note that a delay in increasing the burden of the major tax faced by workers—the goods and services tax (GST)—is only fully precluded for 2021, with Minister Heng stating that the GST hike will occur by 2025. This essentially institutionalizes differential treatment of capital and labor in the revised tax code. Some justification of this distinction would be very welcome.
It is also useful to observe that the Bill offers extremely limited relief for individual employees. Clause 16, for instance, provides exemptions for expenditures on accommodation and other necessities for those who normally resident outside of Singapore but who have, due to COVID-19, been forced to remain here for the year. But there are precious few other cuts applicable for employees.
To be fair, the Budget has stipulated a host of direct transfers that workers enjoy, either directly (such as via cash grants) or indirectly (through the Jobs Support Scheme). Academic research also suggests that fiscal policy tends to offer more bang for the buck when effected as spending rather than tax cuts. Moreover, a more universal income tax cut may excessively compromise fiscal balances, and thereby run at cross-purposes to the targeted transfers effected by the various Budgets.
Still, given the prevalence of COVID-19-inspired income tax reductions in many countries worldwide, it seems fair to question whether there could be room for explicit income tax relief for specific groups within society. This would apply, in particular, to workers within Tier 1 and 2 sectors, such as flight crew and hotel staff for the former, and musicians and restaurant personnel in the latter. Given the relatively small size and disproportionately difficult economic circumstances faced by employees in these industries, further tax relief may be especially welcome.
Notwithstanding these additional points of feedback, I support the Bill.