Richard Hu Tsu Tau
Singapore
“Sir, I think it is eminently fair, because the proposal really is for the Government to spend money to give shares to Singapore citizens. Either you agree or you do not agree. Or, if you agree, perhaps you consider the amounts insufficient or too much.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time". The purpose of this Bill is to make provision in accordance with Articles 148(2) and 148C(2) of the Constitution for additional expenditure in excess of the provisions authorised by the Supply Act, 2001.”
“I think the Prime Minister and DPM Lee have already explained it will be based on income levels, with people living in flats as a proxy. So there is no political content in it. It depends on the income level, whether you have served national service or whether you are an elderly person.”
“I really do not understand. I know you are arguing on technicality for which I agree that you may have a point. But, nevertheless, because it is a proposal to share Singapore's surpluses with the population, the distribution is not something which you can argue against.”
“As I said, the estimates will be available around mid-October. I do not think, at this time, I want to give a specific date when the second package will be announced, but it will be done as soon as practicable. IN-PRINCIPLE AGREEMENT WITH MALAYSIA ON OUTSTANDING BILATERAL ISSUES (Assessment) 4.”
“Mr Speaker, Sir, when the $2.2 billion off-Budget package was announced in July this year, we said that the Government would do more to assist Singaporeans if the global economic situation worsened in the coming months.”
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“Sir, in principle, the Government is prepared to divest fully its stakes in the GLCs other than those of strategic interest to our defence or our economy. Other than these strategic investments, the rest can be privatised in due course. However, apart from the obvious considerations of market conditions, the pricing and the capacity of the market to absorb the divestments, there are a number of other considerations in deciding whether we can accelerate the process of divestment. In particular, the Government has put in much effort and resources to develop the GLCs, and we would want to divest them in such a way that the issue of management succession is properly addressed and that there will be either a single shareholder or a group of shareholders with a significant stake to provide management direction and to grow the company. This is important as Government would want the GLC to remain in relatively good hands. Government has also to be fair to the other minority shareholders of the GLC and be mindful that its divestments do not have too adverse an impact on the future of the company. This requirement will, however, slow down the divestment process. Management Buy-Outs (MBOs) are not ruled out as a divestment method for GLCs where the Government has a direct stake. MBO is possible if there is interest as well as a willingness to take the business risk on the part of the companies' management and agreement on reasonable terms of sale. However, the size of the GLCs often makes them beyond the financial resources of managements. Nevertheless, besides MBOs, other approaches of divestment had been, and will be, considered when the terms of sale are reasonable.”
“The investments, acquisitions and takeovers made by GLCs are driven by their corporate strategies for growth and diversification. They are long term investments and are made after due diligence. Until they are sold or disposed of, it is often not meaningful to determine the capital gains/losses arising from the investment made as these are still unrealised. When the investments are divested, the realised profits or losses will be reflected in their accounts. However, since most of these investments, acquisitions and takeovers are long-term investments and have yet to be realised or disposed of, it would not be meaningful to try to furnish a schedule of the investments, acquisitions or takeovers made by the GLCs, and to determine the profits/losses made arising from them, as the NCMP has requested. The NCMP may wish to note that the contributions of operating profits or losses from their major investments or acquisitions are included in the annual accounts of the GLCs in accordance with standard accounting treatment for the reporting of the accounts of a company. In addition, for the listed GLCs, like other companies under SES regulations, they would have to seek shareholders' approval for major acquisitions and divestments. There is therefore already a considerable amount of transparency and public scrutiny over major investments and acquisitions made by our GLCs, as well as their performance or non-performance. SCHEME FOR EDUCATION OF THE ILLITERATE 6. Mr Shriniwas Rai asked the Minister for Trade and Industry (a) the number of people in Singapore below the age of 45 years who are illiterate and (b) whether the Government will start a scheme to give them some form of education so that they can be more productive.”
“The CMB collects feedback from member schools through sharing sessions, self-appraisal and regular contact sessions with staff members. The Superintendent works with the individual principals in appraising the performance and potential of key personnel, and see to the grooming of promising officers. MAKING EXPRESSWAYS SAFER 30. Mr Wang Kai Yuen asked the Minister for Communications what measures the Government will be taking to make travelling on our expressways safer by more stringent regulations of heavy service vehicles used in the maintenance of the expressways.”
“For secondary schools, there are 36 classrooms, 4 language rooms, 1 language laboratory, 18 special rooms as above including for history, geography, commerce and home economics, 4 technical workshops and the rest of the administration offices, etc. SCHOOL CLUSTERS 29. Dr Teo Ho Pin asked the Minister for Education (a) how are schools grouped into clusters of schools; (b) what are the organisational structure and composition of members of a school cluster management; and (c) what are the roles and responsibilities of a school cluster management. RAdm Teo Chee Hean: There are currently 9 school clusters, with 6 to 7 schools per cluster. Three clusters comprise secondary schools only; one cluster has a mix of secondary schools and a junior college; one a mix of primary and secondary schools; and four comprise primary schools only. Cluster schools tend to be geographically close to each other. This is to facilitate personal interaction and maximum collaboration among schools in the pooling of personnel, financial and physical resources. School variety is another factor. Variety in terms of pupil intake, stage of development and size add richness to the cluster experience. Each school cluster is led by a Superintendent. He is a senior education officer who chairs the Cluster Management Board (CMB) comprising principals of the member schools. It is an important tenet of the cluster scheme that individual schools be given maximum freedom to develop its own ethos and character. The CMB is therefore to facilitate the sharing of ideas and resources, but not dictate the running of the schools for which final authority remains with the individual principal.”
“To make a better estimate of the demand for school places, MOE from this year has also made an adjustment for new HDB housing estates where the population comprise mainly young families with school-going children. The demand projections are scaled upwards to reflect higher demand for school places in these new estates. Similarly for mature HDB estates, where the demand has levelled off due to a population shift towards the older generation and grown-up children, the demand projections are moderated downwards. Statistics from HDB are used to determine the scaling factors. Schools are provided on the basis of an area covered by a Development Guide Plan (DGP). For example, the Bukit Panjang DGP will cover the whole of Bukit Panjang new town (the Bukit Panjang ward of Sembawang GRC and a part of the Chua Chu Kang Constituency). The Ministry has planned for 5 primary schools in this DGP. One of the schools, West View Primary, is currently functioning at a holding school in the adjacent DGP across the road, and is within 1 km from the permanent site of West View Primary. Overall the number of places in the schools within the DGP area will be adequate for those living within the DGP area. The planned capacities for individual schools are 2,100 for double session primary schools and 1,260 for single-session secondary schools. These planning norms are based on 35 pupils per class but schools can operate up to a maximum of 40 pupils per class. The current primary school building specification standard provides for 36 classrooms, 4 language rooms, 1 language laboratory, 10 special rooms for arts, music, computer, science and mathematics and the rest of the administration offices, library, hall, etc.”
“The Government has accepted this recommendation. Share buy-backs will give companies greater flexibility in their capital structures and in managing their finances. However, safeguards will be necessary to prevent abuse. The existing prohibition on share buy-backs in the Companies Act followed UK law. But the UK, and several other Commonwealth countries including Australia, New Zealand and Canada have since changed their laws to permit share buy-backs, with appropriate safeguards. Their experience is relevant to us. The Corporate Finance Committee chaired by Mr Lim Yong Wah will study and propose how to implement a scheme to allow share buy-backs. DEMAND FOR AND CONSTRUCTION OF NEW SCHOOLS 28. Dr Teo Ho Pin asked the Minister for Education (a) what are the planning guidelines for the construction of new schools; (b) what are the capacities and standard facilities provided; and (c) how data are obtained to ascertain the demand for new schools. RAdm Teo Chee Hean: The process of planning for new schools takes into consideration HDB's building programme and the planned increase of dwelling units, both public as well as private. 6-monthly updates of the HDB building programme for the next 5 years as well as the scheduled completion dates of the new housing developments are obtained from HDB. Similar regular updates for private dwelling units are obtained from URA. From these updates, new schools are planned to be constructed in tandem with housing developments. The objective is to provide adequate school places for residents including those moving into their new homes.”
“The proposal to regulate time share schemes is still being studied. This forms part of the review which is currently being undertaken to determine how best the law could be reformed to capture not only time share schemes but also other currently unregulated investment schemes. The study to regulate soft commodity brokers is also under way. Again, this study will require in-depth examination, especially to ensure that any regulation to be introduced should not adversely affect the interests of legitimate commodity traders. However, it should be recognised that no regulatory system can completely protect investors from making any losses. Singaporeans are advised to stay away from investment schemes which are dubious and claim to promise unrealistically high returns. Rubber and coffee are currently being traded on the Singapore Commodity Exchange, which is regulated by the Trade Development Board. Members of the public who are involved with companies dealing in commodities contracts, other than rubber and coffee, can take the following actions if they are suspicious of any company: (a) Direct their queries or complaints to the Commercial Affairs Department or the Police, which will then conduct investigations under the Companies Act and the Penal Code; and (b) Inform CASE, which is compiling a list of such errant companies. CASE is trying to get evidence and to make people aware of the illegal activities of these companies. LAW TO ALLOW COMPANIES TO BUY THEIR SHARES 26. Mr Shriniwas Rai asked the Deputy Prime Minister if he will consider amending the law to allow companies to buy their shares. BG Lee Hsien Loong: The Finance and Banking Sub-Committee, chaired by Mr Peter Seah, has recommended amending the Companies Act to permit share buy-backs by listed companies.”
“The details, including the procedures to be followed, will be set out in the amendments to the legislation which are now being prepared.”
“The main features of the new scheme to facilitate en bloc sales in strata developments will be as follows: Firstly, the required percentage of majority agreement will depend on the age of the development. If the development is less than 10 years old, there must be at least 90% agreement; for developments 10 years old or more, there must be at least 80% agreement. Both figures are based on share values. Secondly, this majority consent will apply only to strata developments with more than 10 strata units. For developments with 10 or fewer units, there will be no change and all the owners must agree. Thirdly, certain checks and safeguards will be introduced. For example, the majority owners must advertise in the local press their intention to sell. The notice to be served on all the owners must enclose a copy of the sale and purchase agreement and the buyer's statutory declaration stating his relationship, if any, to any of the owners in that development. Fourthly, the Strata Titles Board will be given the role of hearing appeals from minority owners. The main task of the Strata Titles Board will be to satisfy itself that the proposed en bloc sale is a bona fide `arms length' transaction, to ascertain, for example, that there is no coercion of the owners or collusion between buyer and majority owners. In this regard, the Board can take into account factors such as the sale price, relationship between buyer and majority owners, and distribution of the sale proceeds. If necessary, the Board can call for an independent valuation report. If there are non-price issues, the Board will help to have them resolved through mediation. Sir, this is the broad outline of the new scheme.”
“Mr Speaker, Sir, the Government has a long standing policy of keeping the public sector lean and trim. This is to free manpower and financial resources for the private sector to function as the engine of economic growth. Over the years, we have contained the size of the public sector by restraining operating expenditure (by operating expenditure I mean recurrent expenditure which is mostly manpower cost) to grow no faster than GDP growth, thus keeping operating expenditure constant as a share of GDP. This has been achieved by stringent control on cost increases, with some allowance for heavier workload, new programmes and better quality of services to meet public demands and expectations. At around 10% of GDP, our operating expenditure is considerably lower than that of most developed countries. This is because Government expenditure is focused on providing only public goods and services, such as security, basic healthcare, public housing, national infrastructure and education. We have also steered clear of many forms of state welfarism, thus avoiding large scale public assistance programmes which would have drained heavily on our coffers. Instead, our approach is one of many helping hands with co-funding from Government and public donations, and services rendered by volunteers and members of the community at large. EN BLOC SALES FOR FLATS AND CONDOMINIUMS (Status of review) 15. Mr Lew Syn Pau asked the Minister for Law what is the status of the review to make en bloc sales for flats and condominiums easier for owners. The Minister of State for Law (Assoc. Prof. Ho Peng Kee) (for the Minister for Law): Sir, the Government has completed its review. As I indicated in November last year, the requirement that all the owners must agree will be removed.”
“Government accounts are presented to Parliament every year. You are quite free to question it. The Budget is coming up. Why do you not do your homework and ask proper questions at the proper time?”
“Protecting the public's monies is the function of the Government, and the Government is adding to its reserves every year. That is the best way of protecting it, not the way that you are suggesting.”
“Exactly. This is the problem. He does not really understand business and that is precisely why he asked the question.”
“As I explained before, it is the overall returns which we should be concerned with, not individual companies. What is the objective of reporting just pure losses without taking into consideration the overall profitability of these companies? To make sure that they do not operate as companies at all? Should we just get rid of them? When you are running a business, I assume that Mr Jeyaretnam has never run a business, ---”
“I do not see the contradiction in it. These companies are commercial companies. They have their own reporting requirements. Just because they incur a loss, are we going to change their reporting relationships? Mr Jeyaretnam: Does the Minister not realise that the taxpayers remain in the position of shareholders of these companies because it is their monies, and is there not a duty to report to Parliament?”
“The existing system is adequate in monitoring the investments and performance of the Government-owned and Government-linked companies, and we should not make it unnecessarily more onerous for them to operate as purely commercial entities.”
“Yes and no. How do we break Singapore Telecom or Singapore Power into little bits? We can do it within limits, but to divide a company as huge as Singapore Telecom into little bits so that they become more digestible may not be very easy. GOVERNMENT-OWNED AND GOVERNMENT-LINKED COMPANIES (Annual accounts of investments to Parliament) 2. Mr J. B. Jeyaretnam asked the Minister for Finance why there are no accounts made available to Parliament annually of all investments made by Government-owned and Government-linked companies. Dr Richard Hu Tsu Tau: The Government is not required under existing legislation to present the accounts of the Government-owned and Government-linked companies to Parliament. The Government-owned and Government-linked companies are set up under the Companies Act. Like all companies, they operate on a commercial basis, and have to respond and react quickly to changes in the business environment. It would therefore be difficult for these companies to operate if they were to be made accountable to Parliament for their every action. Like any other companies, they are subject to the same reporting and disclosure requirements under the Companies Act. In addition, companies which are listed on the Stock Exchange are accountable to their shareholders for their performance and operations. They have to circulate their annual reports to their shareholders. Strategic companies which are owned by the Government, such as Temasek Holdings and Government of Singapore Investment Corporation, are included in the Fifth Schedule of the Constitution. These companies are subject to the provisions of the Elected President in the use of their accumulated reserves. They are also required to submit yearly financial statements to the President.”
“The only companies which Government would want to retain de facto controlling interest are defence-related companies. Other than that, the other purely commercial companies have not been divested completely over the years because of their huge size. It would be very difficult to unload Government shareholdings overnight without disrupting the market.”
“Indeed, that is true. There is a fundamental dilemma. In fact, a desirable outcome would be for the Government to divest itself fully of companies with commercial activities, and that is still our intention over the long term. But many of our new companies, particularly the statutory boards which are being privatised, require a period of nurturing, so to speak, before they are let loose completely. But over time, companies, like SIA, DBS, other than policy considerations, should be entirely privatised. And this still remains our long term objective.”
“Indeed, this must be the sense and therefore I would assume that the management of these companies would take this into account. It must be so. In fact, it acts as a check of sorts that they are aware that they are dealing with public money. It makes them a little more cautious and it also may make them more risk-averse.”
“I am afraid there are no safeguards against business risks. You have to make your judgement and take your punishment or your rewards accordingly. I would just like to remind him that in assessing Singapore's investments, whether you lose or gain, you take a long view. I have said again and again that over the last 10 years, in aggregate, the companies have made substantial profits and added to Government's coffers. That should ultimately be the criteria, not criticisms or critics on individual investments.”
“People like himself who knows about business investments?”
“That is the nature of a business decision. Either you do it or you don't. Would he like to suggest an alternative? Perhaps he would like to vet every decision made by Government companies. Mr Jeyaretnam: I should have thought that was obvious. There should be a proper committee, not chaired just by Ministers but also by public people who know about investments, to advise the Government-owned companies and Government-linked companies on acquisitions and take-overs.”
“The Ministerial Committee, as I explained earlier, is basically responsible for making acquisitions and would of course be interested in the details of any major losses which Temasek would in due course, after their own study, advise. However, I would like to point out that although in absolute terms, the loss looks very large, the sizes of the operations are also huge and our companies anyway are venturing into the high-tech areas. I think you should realise that the nature of the business is highly volatile and very capital-intensive, and if you are going to be in that business at all, you have to accept the consequences. I will refer you to a report - I think it was yesterday or before yesterday's papers - about Seagate, the largest disk drive company in the world, incurring a first quarter loss of over US$300 million because of the downturn in this business. So the nature of business requires high risk, you make money, you lose money. But overall, Temasek group of companies has been accumulating assets at a rate of, as I mentioned earlier, $1.6 billion per year over the last 10 years and without drawing on Government's equity.”
“The position has been reviewed by the holding company, which is Temasek Holdings, and that is where the matter rests. No report has been made to Cabinet, nor is it required. Mr Jeyaretnam: It may not be required. But if you have a Ministerial Committee, is it not the function of the Ministerial Committee, chaired as he said by BG Lee, to inquire closely into huge losses suffered by Government-owned companies? Here we have a case of half a billion dollars gone down the drain.”
“The answer is no. The acquisition was funded from ST's internal resources plus bank loans. So CPF is not involved.”
“Can I suggest that he reads my answer? It is the Board of Singapore Technologies.”
“Although I could not finish the Oral Answer in Parliament, I think the full answer has been circulated to all Members, including Mr Jeyaretnam. And just to recap, they consulted their own investment bankers and professional consultants before the decision was made, and this was made clear in my answer.”
“Mr Speaker, Sir, Government-linked companies, like all other companies, have their own managements and boards of directors and they decide on acquisitions and investments. If necessary, they may seek the advice of investment banks or consultants.”
“But the matter will be studied, together with all other aspects of the Government's policy towards the financial sector, as part of the review of the sector now underway. COMMITTEE TO REVIEW THE PENAL CODE 2. Mr Shriniwas Rai asked the Minister for Law if he will consider setting up a committee to review the Penal Code so as to meet the present-day needs of Singapore.”
“Mr Shriniwas Rai asked the Deputy Prime Minister (a) if he will offer incentives to local banks to merge so that the banks may pool resources to compete with foreign banks and (b) if he will consider reviewing shareholding ceilings of the banks incorporated in Singapore. BG Lee Hsien Loong: The financial services industry is in ferment worldwide. The driving forces are information technology and globalisation. Financial institutions are merging and restructuring, in order to derive growing economies of scale and serve customers more efficiently. It is impossible to insulate our domestic banks from these larger trends. The smallness and openness of our domestic market makes us even more susceptible to them. By international standards, our local banks are quite small. They need to grow large enough to have the economies of scale, the mass and reach to offer efficient, high quality services to Singaporeans, and to become significant regional players. Bank mergers are one way to achieve this, provided the mergers are followed through and the previously separate businesses are properly integrated and rationalised. The Minister for Finance has publicly encouraged the local banks to consider mergers. The driving forces in the industry give them strong incentive to do this, even without Government persuasion. Keppel Bank and Tat Lee Bank have just announced their intention to merge. The Government will study what more it can do to encourage the banks in this direction. We have also informed the local banks that if they wish to bring in foreign minority partners to support a strategy of growth, and to bring in expertise and technology, the government will be supportive. MAS has no immediate plan to raise the foreign shareholding ceilings.”
“The company is under liquidation. This means that the financial affairs of Micropolis are now independently and professionally managed by experienced liquidators from reputable international firms. They will determine how best to recover and dispose of the assets of the company in the process of liquidation. Based on the Statement of Affairs lodged by the Liquidators of Micropolis in December 1997, Micropolis does not have sufficient realisable assets to fully repay the unsecured creditors, including ST. Recovery expectation is about 10% of the debts claimed. ST has S$80 million as equity in Micropolis, plus loans totalling S$550 million. Part of the loans were provided in 1996 to fund working capital and production equipment for Micropolis. As Micropolis managed to improve its bottomline in 1996, and turn in a profit by December, further loans were extended by ST in 1997 for additional working capital to increase production capacity for key OEM accounts, and to fund R&D for new products. Thus total losses to ST are expected to be the S$80 million equity plus some 90% of the outstanding loans. (iv) Where did the money for the investment come from? Singapore Technologies had funded this investment through its own internal funds and external commercial borrowings. The Government did not provide Singapore Technologies with any direct funding whether through loan or equity for this particular investment. However, as Singapore Technologies is a 100% government-owned company, this investment loss would result in a dimunition of Government's assets. WRITTEN ANSWERS TO QUESTIONS INCENTIVES TO LOCAL BANKS 1.”
“The leading players have either sounded alarm over their earnings prospects or have taken steps to consolidate their operations, including closing plants, laying off workers or delaying new investments. Throughout 1997, Micropolis' operating losses mounted, as sales continued to fall below projections and product margins were eroded faster than expected. There was excess inventory in the market. Micropolis was unable to turn around with 1997 operating losses progressively worsening in the first half of 1997. By mid 1997, Micropolis was already exploring various alternatives for partnerships or mergers with other market leaders but without success. Prospects for recovery worsened considerably with the sharp change in the competitive environment as 1997 progressed. By October 1997, the operating loss for the year had reached S$200 million. Having reviewed the company's business performance, resources and prospects, the Micropolis Board of Directors was left with no choice but to wind up the business. (ii) What went wrong in the process of the acquisition? We have to accept that risk-taking is part and parcel of all investment decisions. In acquiring Micropolis, Singapore Technologies had believed that the new management could turn the company around by focusing on the high end niche market which had been a profitable industry segment. Singapore Technologies carried out a four month due diligence with its external consultants on the investment before the acquisition. As it turned out, the severe over-capacity in the high-end disk drive market which was not anticipated by Singapore Technologies was the main reason which made this investment a loss-making venture. (iii) How much money was lost from the acquisition to the closure of the company?”
“(i) What led to the closure of Micropolis just under 2 years after Singapore Technologies acquired the company? Singapore Technologies saw opportunities in the hard disk drive business of Micropolis and decided to buy over Micropolis' worldwide HDD business in April 1996. The new Micropolis management, which led the acquisition, had expected to turn the company around from its previous losses and re-establish it as a profitable high-end disk-drive manufacturer. Following its acquisition by Singapore Technologies in 1996, Micropolis refocused its range of product offerings and changed its market strategy to focus on the OEM (Original Equipment Manufacturing) market. With the phasing out of obsolete products, and the launching of new products, Micropolis managed to secure several new OEM customers. Micropolis also continued to reduce operating losses throughout 1996, and turned in a profit for the month of December 1996. Therefore, although total operating losses amounted to S$76 million in 1996, Micropolis was actually showing gradual improvement in its performance. However, the high-end disk drive industry took a dramatic turn in 1997, with the aggressive entry of several major players. As most of you may know from the various press reports, there was severe over-capacity in 1997 as a result of simultaneous investments by existing and new players. This resulted in over-supply and intense price competition. Prices were dropping at 16% to 18% each quarter in 1997, some 3 times the normal rate of 5% to 6% price erosion each quarter as manufacturers competed for market share. Industry analysts believed that the disk drive industry is in the throes of a major adjustment stretching into 1998.”
“These changes to the treatment of capital allowances and losses from the leasing of machinery and plant are provided for under clauses 5 and 13 which amend sections 10D and 43I respectively. Finally, the last amendment concerns the claiming of capital allowances for motor cars registered and used exclusively outside Singapore. At present, owners of a Q-plate car are allowed to claim capital allowances for their cars. Similar tax treatment is also applicable to cars registered outside Singapore and used exclusively outside Singapore. An example of the latter would be cars used by an overseas branch of a Singapore company. However, while owners of Q-plate cars are given balancing allowances upon the disposal of the cars, owners of the above mentioned foreign cars are not entitled to any balancing allowance. To rectify this inconsistency, clause 9 amends section 20(5A) to allow balancing allowances upon the disposal of such foreign cars. Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee. [Mr Speaker in the Chair] Clause 1 -”
“At present, the valuation rule used to determine the taxable gains is the difference between (a) the price of the share in the open market at the time of the exercise of the option; and (b) the amount the employee had paid for such shares. However, there is usually an interval between the exercise date and the date on which the shares subscribed for are approved by and listed on the Stock Exchange of Singapore. As the shares are only tradable when it is listed, clause 3 amends section 10(5) to provide that the taxable gains shall be computed as the difference between the price of the shares when it is listed and the amount paid for the shares. The second tax change deals with the treatment of capital allowances and losses from the leasing of machinery and plant. Currently, the Act provides that if a lessor carries out finance lease activities, he can only set off the capital allowances of a finance lease asset against his income derived from the finance leasing. This is to prevent finance leasing activities from being used as a tax shelter. As a result of the current wording of the Act, the unabsorbed capital allowances of a finance lease asset will be forfeited when the finance lease business ceased. As the current tax treatment is unduly restrictive, I have decided to amend the Act to allow such unabsorbed capital allowances to be set off against any other income of the lessor when there is a permanent cessation of his finance lease business. As a consequence of this change, and since a leasing company can carry out both onshore and offshore finance or operating lease activities, the amendments also set out the manner of setting off capital allowances and losses for such leasing companies.”
“Clauses 2, 4 and 7 amend the relevant sections of the Act for this purpose. The next two tax changes pertain to existing tax concessions. Since the Year of Assessment 1992, banks are allowed to claim tax deduction for general provisions made for loans and investments in securities. To encourage banks to increase their level of general provisions to buffer against any unexpected losses, I have raised the limit on tax deductible general provisions from two per cent to three per cent of qualifying loans and investments. Clause 8 amends section 14I to provide for this change which will take effect from Year of Assessment 1998. I have also announced that the tax holiday granted to the Singapore Commodity Exchange Limited (SICOM) in 1992, for five years, will be extended for another five years. Clause 6 amends section 13(1)(p) for the extension of this tax holiday. Lastly, to encourage the setting up of reputable credit rating agencies in Singapore, I have announced a concessionary tax of 10 per cent on income derived from providing credit rating services with respect to the issue of foreign currency denominated securities in Singapore. Clause 14 introduces a new section 43M for this incentive which will take effect from the Year of Assessment 1998. Tax Changes not announced in the 1997 Budget Statement I shall now deal with the three tax changes that were not announced in the 1997 Budget Statement. The first tax change pertains to the computation of gains derived from the exercise of share options. The gains derived by an employee from the exercise of share options issued under the Employee Share Options Scheme are taxable.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Income Tax (Amendment) Bill 1998 seeks to give legislative effect to the income tax changes announced in the 1997 Budget Statement. Opportunity is also taken to incorporate three other amendments to the Income Tax Act. Tax changes announced in the 1997 Budget Statement I shall begin with the tax changes announced in the 1997 Budget Statement. There are a total of five tax changes which require amendment to the Act. I will start with the tax changes affecting individual taxpayers. I have announced that, with effect from Year of Assessment 1998, there will be an increase in tax reliefs for taxpayers who maintain dependants. For those who stay with aged parents in the same household, parent relief is raised from $3,500 to $4,500. There is also an increase in tax relief for wife as well as child relief from $1,500 to $2,000. In addition, I have also relaxed the income ceiling condition for eligibility of parent relief, wife relief, handicapped siblings relief and child relief. The respective reliefs will be allowed so long as the dependant does not have an income exceeding $2,000 in that year, instead of the current level of $1,500. Clauses 11 and 16 amend the relevant sections of the Act for this purpose. I have also announced that with effect from 1st January 1999, all CPF contributions, whether made voluntary, or obligatory under contracts of employment, will no longer be tax deductible for both the employee and the employer. In addition, the employer's contribution will be taxable as income in the hands of the employee. However, in support of the regionalisation programme, the existing tax treatment will still apply to Singaporeans posted overseas who make voluntary CPF contributions.”
“As it turned out, the severe over-capacity in the high-end disk drive market was not anticipated by Singapore Technologies and was the main reason which made this investment a loss-making venture. How much money was lost from the acquisition to the closure of the company? The company is under liquidation. This means that the financial affairs of Micropolis are now independently and professionally managed by experienced liquidators from reputable international firms. They will determine how best to recover and dispose of the assets of the company in the process of liquidation. Based on the Statement of Affairs lodged by the Liquidators of Micropolis in December 1997, Micropolis does not have sufficient realisable assets to fully repay the unsecured creditors, including Singapore Technologies. Recovery expectation is about 10% of the debts claimed. Singapore Technologies has S$80 million as --- 1.30 pm”
“The leading players have either sounded alarm over their earnings prospects or have taken steps to consolidate their operations, including closing plants, laying off workers or delaying new investments. In fact, there are reports in today's papers regarding Seagate's, the largest disk drive manufacturer in the world, plans for such changes this year. Throughout 1997, Micropolis' operating losses mounted, as sales continued to fall below projections and product margins were eroded faster than expected. There was excess inventory in the market. Micropolis was unable to turn around in 1997. Operating losses progressively worsened in the first half of 1997. By mid-1997, Micropolis was already exploring various alternatives for partnerships or mergers with other market leaders but without success. Prospects for recovery worsened considerably with the sharp change in the competitive environment as 1997 progressed. By October 1997, the operating loss for the year had reached S$200 million. Having reviewed the company's business performance, resources and prospects, the Micropolis Board of Directors was left with no choice but to wind up the business. What went wrong in the process of the acquisition? We have to accept that risk-taking is part and parcel of all investment decisions. In acquiring Micropolis, Singapore Technologies had believed that the new management could turn the company around by focusing on the high-end niche market which had been a profitable industry segment. Singapore Technologies carried out a four-month due diligence with its external consultants on the investment before the acquisition.”
“Mr Speaker, Sir, Singapore Technologies saw opportunities in the hard disk drive business of Micropolis and decided to buy over Micropolis' worldwide hard disk drive business in April 1996. The new Micropolis management, which led the acquisition, had expected to turn the company around from its previous losses and re-establish it as a profitable high-end disk drive manufacturer. Following its acquisition by Singapore Technologies in 1996, Micropolis refocused its range of product offerings and changed its market strategy to focus on the original equipment manufacturing (OEM) sector of the market. With the phasing out of obsolete products and the launching of new products, Micropolis managed to secure several new OEM customers. Micropolis also continued to reduce operating losses throughout 1996, and turned in a profit for the month of December 1996. Therefore, although total operating losses amounted to S$76 million in 1996, Micropolis was actually showing gradual improvement in its performance. However, the high-end disk drive industry took a dramatic downturn in 1997, with the aggressive entry of several major players. As most of you may know from the various press reports, there was severe over-capacity in 1997 as a result of simultaneous investments by existing and new players. This resulted in over-supply and intense price competition. Prices were dropping at 16% to 18% each quarter in 1997, some three times the normal rate of 5% to 6% price erosion each quarter as manufacturers competed for market share. Industry analysts believed that the disk drive industry is in the throes of a major adjustment stretching into 1998.”
“I mentioned that this is a sovereign loan which does not require security. You do not pledge a country to secure the loan. UPGRADING OF HDB FLATS 6. Mr Chiam See Tong asked the Minister for National Development whether, in view of the current currency turmoil in the region and the expected slow down of our economy, the Government will be able to upgrade the HDB flats as promised in the last General Election. The Minister for National Development (Mr Lim Hng Kiang): Mr Speaker, Sir, the Main Upgrading Programme for HDB flats is funded out of budget surpluses. In recent years, the Government has consistently accumulated budget surpluses through prudent fiscal policies. Therefore, the progress of the Main Upgrading Programme has so far been smooth and uninterrupted. The recent currency turmoil has created uncertainties in the economic outlook of the region. Our economy will slow down in the short term. Government revenue in fiscal year 1998 will be affected although we still expect a budget surplus. The Main Upgrading Programme can therefore continue although we will have to scale back the programme to 10 precincts in 1998 compared to 15 precincts last year. Over the longer term, the Government remains confident about Singapore's economic prospects. The Main Upgrading Programme will continue whenever there are budget surpluses. Over the next five years, we will implement the Upgrading Programme as we promised in the last General Election.”
“Mr Speaker, Sir, the US$5 billion loan to Indonesia is a stand-by facility which will only be used when Indonesia has drawn down their own resources and other loans from international bodies such as the IMF, World Bank and ADB. Other countries such as Japan, US, Australia, Malaysia and Brunei have also contributed to the stand-by facility. As previously stated, it is a second line of defence and to-date, no funds have been disbursed. Secondly, this is a sovereign loan which carries commercial interest rates throughout its tenor. Indonesia has up to five years to repay any draw-downs. We do not expect Indonesia to default on their loan obligations. The country has never defaulted on such loans. They are a fellow ASEAN member with abundant natural resources. At the end of 1996, the annual GDP of Indonesia was US$228 billion. This is more than twice Singapore's GDP.”
“Mdm Claire Chiang See Ngoh asked the Minister for Home Affairs whether his Ministry will commit more resources to strengthen supports services for rehabilitated drug addicts and help them to find jobs.”
“Safeguarding the interests of minority shareholders is important. For this reason, there are currently already a number of provisions in the Companies Act and SES rules to do so. The safeguards are as follows : a) the Companies Act confers certain fundamental rights on each and every shareholder, regardless of the number of shares he or she owns. These include the right to attend general meetings, to speak thereat and to vote on resolutions put forth at such meetings. Minority shareholders are at liberty to ask questions and voice their opinions at such general meetings; b) under the law, each director has a duty to act honestly and in the interest of the company as a whole, ie, in the interest of all shareholders; c) both the Companies Act and SES rules require all listed companies to establish an Audit Committee, which must have a majority of independent directors. The Audit Committee helps to review internal controls, financial statements and procedures for related-party dealings; d) in cases of oppression or injustice done to any minority shareholder, sections 216 and 216A of the Companies Act provide avenues for redress; and e) where the interest of substantial shareholders might be at variance with those of minority shareholders, such as in material related-party transactions, the SES rules require the appointment of independent financial advisers to advise the minority shareholders. Furthermore, substantial shareholders who have vested interests in such transactions have to abstain from voting on the relevant resolutions. The current regulations are adequate to safeguard the interests of minority shareholders. Therefore, it is not necessary to amend the law to allow for minority representation in listed companies. REHABILITATED DRUG ADDICTS 2.”
“Around mid-March 1996, MAS received reports of rumours alleging improprieties in the sale and purchase of apartments in Nassim Jade and Scotts 28 being developed by Hotel Properties Ltd (HPL), a company listed on the Stock Exchange of Singapore, to Senior Minister and Deputy Prime Minister Lee Hsien Loong. The reports were sent to the Prime Minister. As the rumours, if unrefuted, could damage the reputation of the Government, the Prime Minister asked MAS to investigate and ascertain the facts. I instructed Mr Koh Beng Seng, Deputy Managing Director of MAS, to conduct the investigations as the person in charge of the Banking & Financial Institutions Group. MAS' investigations did not disclose any wrongdoing or impropriety by the Senior Minister or the Deputy Prime Minister Lee Hsien Loong. Their purchases of apartments in Nassim Jade and Scotts 28 were made openly and in accordance with stock exchange rules. The discounts offered to, and the prices paid by, the Senior Minister and Deputy Prime Minister Lee Hsien Loong were according to market practice. In short, the answer to the Member's question is that MAS' investigations revealed no evidence whatsoever that could call for the application of section 8 of the Prevention of Corruption Act. VEHICLE PARKING PROBLEMS AT SERANGOON NORTH 57. Mrs Lim Hwee Hua asked the Minister for National Development what other measures his Ministry plans to introduce to alleviate the vehicle-parking problems at Serangoon North.”
“However, the Company had not released its audited accounts for the year ended September 1996 and its interim results ended March 1997 within the 6 / 3 months (as the case may be) required by the SES rules. As a result, the investing public does not have recent information on CAM's financial position, including its solvency. In view of these circumstances, it would not be appropriate to resume trading in CAM shares now. The SES will let the shares resume trading after the Company has finalised and reported its September 1996 audited accounts and March 1997 interim results, and the Company can show that it has sufficient working capital to continue as a going concern. What will MOF do to avoid similar companies from getting listed so that small investors will be better protected? The review of listing applications falls within the purview of the SES. No amount of rules can ever prevent frauds and dishonest conduct. To try to do so by introducing more or stricter rules will increase the cost of operations for an overwhelming number of good corporate citizens. What can and should be done is to impose severe punishment on those persons found to have perpetrated serious frauds that caused huge losses to the public. In addition, professional bodies, in this case the Public Accountants Board and the Institute of Certified Public Accountants of Singapore, must deal with unprofessional behaviour of their members quickly and firmly. PURCHASE OF APARTMENTS IN NASSIM JADE AND SCOTTS 28 56. Mr J B Jeyaretnam asked the Minister for Finance whether, in his inquiries conducted into the purchase of apartments in Nassim Jade and Scotts 28 by the Senior Minister and the Deputy Prime Minister Lee Hsien Loong, he considered the application of section 8 of the Prevention of Corruption Act.”
“In CAM's case, there was nothing to cause the SES to suspect that any information contained in the listing application was inaccurate or misleading. The problem in CAM's case would appear to be an audit failure resulting from alleged collusion between a partner in Cheong Khee San & Co and the top management of CAM to falsify the group's financial accounts. Consequently, the 5-year audited consolidated accounts of the group submitted in the listing application were likely to have vastly overstated the group's profits or concealed its losses. Had the group's past accounts been properly prepared and audited, the Company might not have met the SES' listing requirements and the listing might not have taken place. Issues that led to the suspension of trading of CAM International shares in the stock market CAM shares were suspended from trading on the SES on 29th April 1997. The SES took that action after it was notified by the Monetary Authority of Singapore that Ernst & Young had made a report to the Minister for Finance under section 207(9A) of the Companies Act. In that report, Ernst & Young concluded that it believed that a serious offence had been or was likely to have been committed against the Company by its officer(s). The SES decided that it would be in the interest of the investing public to suspend trading in CAM shares until adequate details about the alleged irregularities and their effect on the Company's financial conditions have been established and disclosed to the public. Since then, the Company had appointed Price Waterhouse to investigate the matter, and Price Waterhouse's findings had been released to the market.”
“How CAM International got through the supposedly stringent SES listing criteria CAM International ("CAM" or the "Company") applied for listing on the Main Board of the Stock Exchange of Singapore ("SES") in March 1994. The listing application was sponsored and managed by United Overseas Bank ("UOB"). UOB had reviewed the business and financial position of the Company, and was satisfied that the Company was suitable for listing on the SES. UOB had also carried out due diligence on the disclosures made in the listing application and in the prospectus issued subsequently in connection with the share issue. Prior to 1993, CAM's accounts were audited by Cheong Khee San & Co. Before the listing, Ernst & Young was appointed the joint auditor starting from the financial year ended 30th September 1993. The joint auditors did not make any material qualifications to the 5-year audited consolidated financial results of the group which were submitted in the listing application. Based on the information (including the 5-year audited accounts) contained in the listing application, the SES considered CAM to have met the minimum listing requirements, and accordingly, approved the Company for listing on the SES. In reviewing listing applications, the SES, like other stock exchanges elsewhere, has to rely on information and documents prepared, provided and/or vouched by various independent professionals. These professionals include the auditors of the listing applicant, the investment bankers sponsoring and managing the listing and share issue, and the lawyers advising on the legal issues. It is both impossible and impractical for the SES to verify every piece of information contained in a listing application.”
“This situation already exists because we are not restricting anybody from coming in. So I do not think that really changes the situation. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee. [Mr Speaker in the Chair] Clauses 1 to 7 inclusive ordered to stand part of the Bill. Clause 8 -”