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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“People are concerned that retailers will not round off, but they will round in. So I would like the Minister for Finance to clarify this question. Finally, I have noted what Mr Low Thia Khiang has said in his report on the Cost Review Committee in relation to GST. Two questions have been raised. One is whether GST will be increased after five years and, second, after the rebates have been abolished, what will be the impact on the lower income group. I hope that the Minister will answer these two points so that such remarks will not mislead and confuse the public. On these two points here, I would like to make two suggestions. One, after the implementation of GST, the relevant Government department should conduct a sample survey every year, or regularly, to assess the impact of GST on the lower income groups. If necessary, rebates and subsidies should be extended. We should handle these matters sensibly. We should not rigidly say that these should be taken off after five years. If, after five years, there is an economic recession and there is adverse effect on the lower income groups, then it is necessary to extend the rebates and subsidies. My second suggestion is that the Government should, as far as possible, avoid raising the GST rate after five years. Of couse, this will be determined entirely by future economic performance and the need for tax revenue. If there is a need for adjustment, I hope that the Minister for Finance will include the adjustment of tax rate in his Budget statement for the approval of this House.”
“If there is such a need, what will be the development cost for the software, and what will be the recurrent cost involved? On the whole, I hope the Minister will be able to inform this House what is the average cost to collect $1 of GST? What is this ratio compared with the ratios of personal income tax and company tax? Is it higher or lower? Thirdly, after the publication of the White Paper on GST, my impression is that the Government departments' publicity and education programmes appear to have been concentrated on the businesses, ie, how to collect GST and how to handle the related administrative problems. My question is how would the GST Steering Committee inform and educate the public to enable them to understand better the principle and objective of GST so that they will be able to accept this new tax? Currently, many people still have doubts and reservations about GST. As the Minister has already admitted, not many people know about GST. They remain silent probably because, GST is not yet implemented. We must strengthen our publicity and education programmes to ensure the smooth implementation of GST next year. Here, I would like to ask the Minister for Finance and the Minister for Trade and Industry whether, before the implementation of GST, they intend to speak to the public on television and radio to explain GST so that the people will have a better understanding. Fourthly, on 16th February, the Feedback Unit conducted a dialogue session. Most of the participants agreed that GST should be calculated separately from the prices of goods and services in the same way that cess is calculated as a last item. Their concern is that if every item is calculated to include the 3% GST, then the increase will be more than 3% because of rounding-off.”
“While to improve the efficiency of the machinery of tax collection and to reduce compliance cost may be important, the protection of the consumer's interest and the public's acceptance of GST are even more important. Under this premise, I would like to ask the Minister for Finance and the Minister for Trade and Industry a few questions. First, on the interests of consumers. According to feedback from the community and trade union leaders as well as the feedback collected by the Feedback Unit after the publication of the White Paper on GST, prices have increased. I would like to ask the two Ministers: up to now, what measures has the Committee on Profiteering and Inflation taken to prevent profiteering? What will be the additional sum the Ministry of Finance will put aside for the benefit of CASE so as to enable CASE to play a more important role? What laws will be amended in order to give CASE more legal power to protect the interests of consumers? Secondly, after the implementation of GST, I believe that, apart from internal transfers, IRAS as well as the Customs and Excise Department (CED) will need to engage new staff to handle the implementation of GST. I would like to ask the Minister for Finance how much additional manpower will be required, and how many new posts will be created. In the current tight labour market, within the next six months, will the two departments be able to recruit the staff needed? Will IRAS and CED be competing with the private sector in the recruitment of accounting assistants, accounts clerks and computer programmers and thereby lead to wage increase of these categories of employees, and hence increase the burden of the private sector? Furthermore, do these two bodies require new software for the implementation of GST?”
“Accounting of GST by Customers The Committee finally noted that in many other countries, such as the UK, there have been many instances of fraud involving gold, whereby the supplier absconds with a high amount of output tax collected. The Committee has, therefore, inserted a new clause 38 to the Bill to enable the Minister to make regulations to provide for the recipient to account for the output tax if the need arises. This provision covers precious metals, precious stones and land. Sir, I beg to move. Question proposed. Dr Ow Chin Hock (Leng Kee)( In Mandarin): Mr Speaker, Sir, I support the motion standing in the name of the Minister for Finance. I would like to reiterate that, in principle, I support the GST as part of our tax reform in Singapore to enhance the competitiveness of Singapore. I also believe that the package of rebates on service and conservancy charges, tax rebates, subsidies, etc. will be able to cushion the impact of GST on the lower income groups. The Select Committee on the Bill received 70 representations. Most of them came from industrial and commercial organisations as well as individual industries. What they have said are mainly the concepts and definition in the GST Bill, and the problems and difficulties in implementation. The Minister has already announced the acceptance of certain recommendations and has made the necessary amendments to the relevant clauses, for example, group registration and reverse charges for overseas services. However, concerning the interests of consumers, there is only one representation from CASE. We must remember one premise. Whether they are companies or enterprises, they are agents that collect GST on behalf of the Government. The eventual taxpayers are the consumers in Singapore.”
“Re-zoning of Land The original Bill provides for land re-zoned as non-residential to be treated as taxable, and for GST to be accounted for by the taxable person. The Committee agreed with a representor that since GST on non-residential land is recoverable, the re-zoning of land should not be regarded as a taxable supply. Where the Government has granted written permission for more intensive developments on residential land, there should also be no GST since residential properties are exempt in the first place. Clause 10 has been amended accordingly. Free Gifts The Committee has increased the concession whereby free gifts will not attract GST from $100 to $200. Gifts of "commercial samples" will also not attract GST. The Committee is also of the view that if no input tax is incurred in the making of the gift, the supplier will not have to account for the deemed output tax. This is fair because the supplier will not be able to claim input tax if the gift is purchased from an exempt trader. The Third Schedule of the Bill has been amended accordingly. Second-hand Motor Vehicles The Committee has amended the Third Schedule of the Bill to provide for a discount factor of 50% to be used in computing the value of a second-hand motor vehicle to which the GST is applied. This will effectively reduce the GST payable by 50%. This discount factor is to correct the distortion created by the COE and ARF on the market price of a second-hand motor vehicle as GST is not levied on these components of the price of a new vehicle. The 50% discount factor will not apply if the vehicle is purchased through a margin scheme as under the scheme, GST is payable only on the profit made by the dealer and not on the sale price of the vehicle.”
“In-house Exchange Rate The Committee has accepted the suggestion by some representors that in-house foreign exchange rate be used for GST purposes. The Third Schedule of the Bill has been amended to allow the Comptroller to determine the exchange rate applicable for a specified period or accept such other exchange rate as may be proposed by the taxable person on his supplies. Penalties In response to the concern expressed by several representors, the penalty provisions of the Bill have been suitably amended to make a distinction between innocent errors and fraudulent conduct. Under the original Bill, the penalties in relation to fraud, other than that pertaining to fraudulent refund, entail an imprisonment term not exceeding seven years. Clause 62 has been amended to extend the offence of fraudulent evasion of tax to include fraud by way of obtaining a fraudulent refund. This is to ensure consistency with the penalties for other types of fraudulent conduct. Bad Debt Relief The Committee agreed with a few representors that the proposed one year requirement for the claiming of bad debt can be shortened in cases where the debtors' businesses become insolvent. Details of bad debt relief will be spelt out in regulations made under clause 25(3). Cash Accounting and Six-month Accounting To lower the compliance costs to small traders who may wish to voluntarily register for GST, the Committee recommended that the Comptroller be given the discretion to allow smaller businesses to account for GST on a cash basis and to allow them a six-monthly accounting period. This will address the concerns raised by some representors. Clause 41 contains adequate provisions for the Minister to make regulations for cash accounting and a six-monthly accounting period.”
“The Committee has therefore amended clause 20 of the Bill to enable regulations to be made to allow credit for input tax attributable to supplies made to taxable persons for business purposes. The list of exempt supplies is specified in the Fourth Schedule. As a result of consultation with the financial community, the Committee has amended the Fourth Schedule of the Bill to make clear that trading in financial derivatives, for example, swaps, forward rate agreements and options, as well as the credit portion of a hire purchase or instalment credit are exempt from GST. Paper trading in commodities such as rubber, gold and oil are also exempt provided that the commodities remain unallocated and no physical deliveries take place. The Fourth Schedule of the original Bill exempts payment and collection services which are essentially fee-based. Since it is easy to identify the charge for these services, such services should be taxed rather than exempt. The Fourth Schedule has been amended to remove such services from the exemption list. Fringe Benefits Several representors suggested that GST should not apply to fringe benefits as they are an integral part of a remuneration package and are incurred in furtherance of the business. The Committee disagreed with this view. As fringe benefits are consumed by employees, GST should apply. Otherwise there may be a tendency to build more fringe benefits into the remuneration package to avoid GST. Hence, with the exception of food and accommodation, the employer would have to account for output tax on the taxable supply it makes free to its employees. In the case where an employer pays for expenses incurred for the private use of his employees, such as medical bills, recovery of input tax will be disallowed.”
“Shipping and Port Activities Several representors suggested that the supply and repair of ships and other services rendered within the port, airport and oil terminal area be zero-rated. This is because ships and aircraft are internationally bound and hence the services provided to them are "consumed" overseas. This suggestion has been accepted and new subsections have been added to clause 21 to zero-rate the supply, including the sale, lease, charter and hire of ships and aircraft, with the exception of recreation or pleasure craft. Services provided in the port and airport area for handling them are also zero-rated. Financial Services The original Bill exempts specified financial services where it is difficult to identify the charge for services rendered by financial institutions. Where the supplies are exempt, they will not attract GST. However, the input tax incurred in making the supplies will not be recoverable. A few representors asked that they be allowed to recover input tax in full to maintain their competitiveness. The Committee disagreed as full input tax recovery for exempt supplies is tantamount to zero-rating the service. However, the Committee recommended that businesses be allowed to recover input tax on exempt supplies made to other taxable businesses. This will remove the tax cascade problem, without zero-rating the exempt services to end consumers. Under this method, the Comptroller can work out with the businesses concerned a simple input tax apportionment formula based on the proportion of the institution's business with other taxable parties. Such a system will be simple for both the financial institutions and the Comptroller to administer. The same approach can be used for other partially exempt businesses where applicable.”
“Out-of-Scope Supplies A number of Singapore companies are engaged in procurement activities where goods are shipped from a foreign source to another foreign destination. Such third country trading are supplies that are outside the scope of our GST. Under the original GST Bill, the input tax incurred in respect of such out-of-scope supplies is not recoverable. Many representors express concern that this would erode Singapore's competitiveness as a procurement centre. As such procurement activities are essentially exports of services, the Committee has amended clause 20 of the Bill to provide for the recovery of input tax attributable to such third country trading. International Services The export of services which are zero-rated are specified in clause 21 of the Bill. Under the original provision, a service will be zero-rated only if it is provided to a person who does not have a business establishment in Singapore. Many representors felt that this was unduly restrictive. The Committee shared this view and has decided that the "business establishment" requirement be replaced with the condition that the recipient must belong in a country outside Singapore. The Committee, however, felt that for that category of services which are performed wholly outside Singapore, zero-rating should be given only to those which are physically performed and enjoyed outside Singapore. These include cultural entertainment and exhibition services. Such a restriction prevents tax planning and round-tripping by suppliers who perform services in neighbouring countries to avoid payment of GST. Clause 21 has been amended accordingly.”
“A few representors suggested that the local supplies be zero-rated on the basis that they are eventually to be exported by the purchaser. The Committee noted that the input tax on local purchases should not cause cash flow problems for most of the exporters because they would probably have obtained their purchases on credit. Hence, they would make payments for these purchases only after obtaining the refund from the Comptroller as exporters would generally opt for the one-month accounting cycle. This, together with the waiver of GST on importation, would solve the bulk of the cash flow problems faced by exporters. Furthermore, allowing zero-rating of local sales will complicate the administration and result in a loss of audit trail and hence weaken the policing feature of the system. The Committee was therefore of the view that sales to local parties should not be zero-rated, notwithstanding that the goods may eventually be exported. Bonded Warehousing Regime The Committee has amended clause 37 of the Bill to extend the bonded warehouse regime to imported non-dutiable goods. Under this arrangement, GST will be suspended on goods brought into the bonded warehousing regime. Any supplies of goods while they are remaining in the warehouse or transferred between bonded warehouses will be disregarded for GST purposes so long as they are not removed from the warehousing regime. This scheme will benefit traders who bring goods into Singapore for storage and minimal processing before they are re-exported. Clause 20 will also be amended to allow input tax recovery for supplies made within the bonded warehousing regime. This will ensure that our warehousing facilities remain competitive.”
“However, the Minister should be given the flexibility to make subsidiary legislation to apply the reverse charge to specific services, if the need should arise. If the need does arise, the Minister would also have the flexibility to exempt certain classes of businesses from the application of the reverse charge. Clause 14 has been amended accordingly. Waiver of GST on Importation The Committee shared the view of many representors that the payment of GST on imports would create cash flow problems for traders and companies which manufacture goods primarily for export. To overcome this, Government has earlier announced that exporters approved under a Major Exporter Scheme will be allowed to import goods free of GST and to account for GST only for that portion sold domestically at the time of sale. The Committee agreed with the suggestion by some representors that those who have 51% of their supplies directly exported should qualify for the Scheme. The Major Exporter Scheme will also be supplemented by a banker's guarantee arrangement, which allows bankers' registered businesses which do not meet the export percentage criteria to have the GST waived in a similar way on importation so long as security in the form of a banker's guarantee is provided. The Bill, as it stands, gives the Minister sufficient flexibility to effect the Major Exporter Scheme and banker's guarantee arrangement by way of regulations. Zero-rating of Intended Exports While exporters approved under the Major Exporter Scheme can obtain a waiver of GST on importation, they would still have to incur the tax on supplies obtained locally and claim a refund from the Comptroller later.”
“This in turn has enabled IRAS to fine-tune their procedures so as to make it easier for traders to comply with the procedures for the collection and accounting of the tax. I will now highlight the substantive amendments recommended by the Select Committee. Group Registration Many representors have asked that businesses with related companies should be allowed to register as a group for GST purposes. Allowing group registration should not result in any loss of revenue, and will reduce compliance cost by eliminating the need to account for GST on intra-group supplies. However, the Committee recognised that group registration does open up avenues for abuse. A new clause has therefore been added to allow for group registration, with the condition that the Comptroller may disallow grouping or input tax claim for the protection of revenue. Reverse Charge Where a Singapore business receives a service provided by an overseas supplier, clause 14 of the original Bill requires the Singapore business to account for GST as if it had provided the service to itself. The purpose is to place local and foreign suppliers of services on the same footing as far as GST is concerned. Many representors have urged that the reverse charge provision should be removed. The Committee agreed that it is unnecessary to apply the reverse charge to fully taxable businesses. For exempt businesses, given that a majority of the services they received from overseas have no local equivalent, and that GST is not the only factor which businesses consider in deciding whether to use overseas suppliers, the Committee also recommended that no reverse charge be imposed.”
“The setting up of the Select Committee is a concerted effort by Government to gather views from the public to achieve this objective. The Government has taken this task very seriously because, as observed by an international tax consultant in a Business Times' commentary recently, in some other countries where GST had been imposed without serious public discussion, it has taken them many years to unscramble the system to meet real-life circumstances. I would like to thank representors for contributing their views, many of which are helpful and constructive. The Select Committee has taken into account the representors' concerns and recommended measures to address them. The amendments made by the Select Committee will assist businessmen to streamline their operations and lower the cost in complying with the tax. This will ultimately benefit the consumers at large. In addition, to better prepare the businesses and public for the tax, IRAS has embarked on an extensive Taxpayer Education Programme since the introduction of the White Paper. The GST teams have so far conducted nearly 300 seminars and dialogue sessions with trade associations. In addition, the teams have visited 1,600 traders at their own premises. Presentations have also been conducted at the Community Clubs to explain to the public the basic concepts of the tax and how it would affect them. Such educational efforts will be further intensified nearer the implementation of the tax. IRAS GST teams will visit all traders who asked for advice and assistance. IRAS assistance programme has been helpful in explaining to the businesses how the tax would affect them and how they should prepare for it. The programme has also enabled IRAS to obtain feedback on administrative problems which the traders have.”
“Another major issue for the lower income group which had surfaced is the concern about profiteering by traders when the GST is introduced. I am glad that the Ministry of Trade and Industry (MTI) has activated the Committee on Profiteering and Inflation to work closely with other Government agencies to prevent unscrupulous traders from profiteering. The Minister for Trade and Industry will speak to the House later on the role of this Committee. Sir, I will now turn to the findings of the Select Committee. The Goods and Services Tax Bill 1993 was read a Second time on 19th March 1993, and referred to a Select Committee for consideration. The Select Committee's terms of reference are to improve the administration and provision of the Bill. The Committee received 70 representations, the bulk of which were made by businesses. Of these, 17 representors whose submissions reflected a cross-section of those received were invited to give oral evidence. The Report of the Select Committee was presented to this House on 7th September 1993. The Bill, as set out in Appendix I of the Report, incorporates various amendments made by the Select Committee. The explanations for the amendments are contained in Appendix VI of the Report. The GST is a wide ranging tax on consumption of goods and services in Singapore. Unlike income taxes which are collected directly by the tax authority, GST is a tax collected through the businesses. It is therefore crucial for Government to ensure the effective implementation of the tax and to make the process of collection clear and easy to implement for the businessmen and shopkeepers, while making it easy for the ordinary housewife and shopper to know what they have to pay.”
“This will in turn benefit all Singaporeans by providing better paying and challenging jobs and allow us to enjoy a higher standard of living. At the same time, the Government is fully aware of the effect of GST on prices and the tax burden the public has to bear. The Government has therefore introduced an offset package specifically designed to address the needs of the lower income group. This package will include rebates on rental and service and conservancy charges, property tax rebate, increased Edusave grant, increased public assistance and increased Singapore Allowance. In fact, many people, about 800,000 individual taxpayers, who currently pay income tax will no longer need to do so after GST is introduced. The reduction in individual income tax and the offset package will ensure that nearly all households will be better off after the GST is introduced than before. Indeed, in the first five years, the package of the tax deductions, offsets and rebates will exceed the estimated GST which will be collected. I have also explained why Government has decided on a comprehensive GST with few exemptions. Allow me to reiterate. The experience of most countries which exempt or zero-rate various essential items shows that it leads to higher costs not only for Government but also for traders in complying with the tax. Moreover, exempting basic items will benefit the well-off more than the lower income households as the former spend more even on basic items than the latter. Instead, the Government has decided to provide offset packages which I have mentioned earlier. This direct approach is specifically targeted at those who need assistance and hence more efficient and cost effective.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Third time." Sir, the rationale and timing of the introduction of the Goods and Services Tax (GST) and the impact of GST on the lower income groups and prices were discussed extensively during the introduction of the White Paper, the Budget and during the Second Reading of the Bill. However, despite the publicity in the media and efforts by the Income Tax Department and Members of Parliament speaking to individual groups of Singaporeans to educate them on the nature of the new tax, the reaction of the public reveals that whilst awareness of GST is high, people's knowledge of the tax is limited to certain basic facts, such as the 3% tax rate and the implementation date. This indicates that many people still see GST merely in terms of an additional 3% to prices which they have to pay. It would appear that many Singaporeans have not quite grasped the significance and the rationale for introducing the tax. Many people are also not fully aware of the tax reduction and offset package that have been introduced together with the GST. While price increase is a major and legitimate concern for everyone, it would be very unfortunate if most people associate GST only with price increases. I would therefore now like to take this opportunity to reiterate that GST is part of a broader strategy of tax reform to make Singapore's tax structure fairer and to help the country stay ahead in an increasingly competitive world. Integral to this tax reform is a package on income and corporate tax rate reduction to stimulate growth and enterprise. The lower tax rates for companies would result in lower business cost and make Singapore more attractive to foreign investments and a more competitive place to do business.”
“As the AROs were instructed to complete all the faxing for one counting station, before counting the ballot papers of the next counting station, those AROs who supervised more than three counting stations were especially held up by the faxing bottleneck. The basic problem, however, was that the reporting procedure, requiring five faxes per GARO, was too cumbersome. It was designed to maximise control and prevent errors, but was unduly cautious. The Elections Department will revise it to reduce the number of fax transmissions without sacrificing control and accountability. It will ensure that in future elections, the votes will be counted and the results available as early as possible.”
“He was assisted by 12 Group Assistant Returning Officers (GAROs). Under the GAROs, there were 163 Assistant Returning Officers (AROs) who directly supervised the polling and counting of the ballot papers. Each ARO looked after up to six counting stations. The RO, GAROs and AROs were located in different places. They communicated through fax machines and telephones. The Elections Department adopted the 3-tier structure to provide supervision and control. This was the same structure used for the General Elections, except that this time, the RO, GAROs and AROs were dispersed over more counting centres. The procedure for AROs to report results progressively to the RO was as follows. When each counting station completed its counting, the ARO would fax the result on a "Record of Counting" form to his Group Assistant Returning Officer. The GARO would re-fax it to the RO for double checking. After satisfying himself of its accuracy, the RO would give his approval by phone for the GARO to print out the "Record of Counting". The GARO would then fax the printed Form to the ARO, to be signed by the ARO and the candidates' Counting Agents. The ARO then faxed the signed Form to the GARO, who in turn would fax it to the RO. This completed the paperwork for the counting station. Hence, for each counting station, the GARO had to handle five fax transactions. He received two faxes from an ARO and sent out three faxes - two to the RO and one to the ARO. The busiest GARO with 48 counting stations had to deal with 240 fax transactions. Each fax transaction took almost a minute. Each GARO was equipped with only one fax machine. This was grossly inadequate. It caused a bottleneck which delayed the transmission of the "Record of Counting" form.”
“I said that we do not think it is excessive. So that should be the answer. It is a matter of opinion and judgment. PRESIDENTIAL ELECTION RESULT (Delay in announcement) 6. Mr Low Thia Khiang asked the Prime Minister if he will say why there was a seven-and-a-half hour delay before the result of the Presidential Election was announced. The Prime Minister (Mr Goh Chok Tong): Mr Speaker, Sir, in the recent Presidential Election (PE), the Elections Department estimated the result to be announced at about 1.00 am. But it could not do so until 3.30 am. The delay was 2(r) hours, not 7(r) hours. 1.66 million votes were cast in the Presidential Election. For comparison, in the 1991 General Elections (GE), only 800,000 votes, or about half the number, were cast. Members may remember that in the 1991 GE, the final result was announced at 3.15 am, only 15 minutes earlier than the announcement of the Presidential Election result. Recognising the scale of the PE and the desirability of announcing the result early, the Elections Department decentralised the counting of ballot papers. Instead of counting all the ballot papers in one central counting centre, ballot papers were divided into 369 counting stations and counted as such. Decentralised counting did speed up considerably the counting process. The largest counting station took only three hours to count. With the benefit of hindsight, the Elections Department identified two shortcomings: its procedure for progressive reporting of results to the Returning Officer for tallying was overly cautious and cumbersome and, secondly, its not providing enough fax machines. These caused the delay in the announcement of the result. The Presidential Election counting organisation had three tiers. At the top was the Returning Officer (RO).”
“I have said earlier that we do not think the number of gambling occasions is too large. As to the second question, I think it is well known that we are against gambling, but since we accept the fact that human beings are likely to gamble, providing a form of legal gambling at least ensures that the bulk of the proceeds of gambling will be drawn back into the Government system through betting duties which then go to the Consolidated Fund as part of Government revenue together with contributions to charities. I think the education programme is something which we can consider but I do not think it is realistic to expect any campaign to wipe out gambling altogether, certainly not amongst the Eastern people.”
“Mr Speaker, Sir, in any society, there will always be people with the propensity to gamble. Ordinarily, most of the money will end up in the pockets of illegal gambling operators. Legal gaming facilities provide an alternative to these illegal operators, and serve to control illegal gambling in Singapore. The proceeds from legal gambling can be channelled towards educational, social and other charitable causes. The number of draws for Toto, 4-D and Big Sweep has not increased since their inception in the 1960s. Horse racing has also been conducted on Saturdays and Sundays since the mid-1960s. I believe the present level of these forms of gaming is not excessive. For instance, instances of cheating have not occurred. Any reduction in the frequency of these activities will only drive punters back to the illegal operators. If the hon. Member will give cogent reasons why these forms of gambling should be scaled down, I shall be glad to give him a hearing.”
“Under the existing Revised Balloting Scheme (RBS), implemented since January 1992, new households enjoy enhanced probabilities of success compared to upgraders at the ballot for HDB flats in non-mature estates. Apart from Tampines New Town where demand far exceeds supply, new household applicants who continually apply for flats in non-mature estates should generally be able to book a flat within a year of their first application. In the case of upgrader applicants, it is 2 years from the date of their first application. In other words, new household applicants are given a one year headstart over upgraders under the RBS in the allocation of HDB flats in non-mature estates. The RBS is fair as it gives both new households and upgraders a chance of being allocated a flat. At the same time, it recognises the greater need of new household applicants to be allocated flats earlier. HDB will continue to monitor the RBS and will make appropriate adjustments, if necessary. TRAINING OF SECOND LANGUAGE TEACHERS 15. Mrs Yu-Foo Yee Shoon asked the Minister for Education how second language teachers are trained, as maintaining the standards of second languages like Malay, Mandarin and Tamil is important to the drive to encourage Singaporeans to venture overseas.”
“Sir, I beg to move, "That the clause be read a Second time." I have announced during the 1993 Budget that in the case of dividend remitted from a country with which Singapore has a tax treaty, Unilateral Tax Credit will be granted to the underlying foreign corporate tax paid on the profits out of which the dividend is declared. Clause 33 of the Bill is therefore amended to reflect this. Question put and agreed to. Clause read a Second time and added to the Bill. Clauses 34 to 38 inclusive ordered to stand part of the Bill. Bill reported with amendments, read a Third time and passed. CENTRAL PROVIDENT FUND (AMENDMENT) BILL Order for Second Reading read. 4.14 pm”
“(4) Where under arrangements for the time being in force under section 49 with the government of any territory outside Singapore no provision is made for tax credit in respect of income out of which any dividend is paid by a company resident in that territory, tax credit under section 50 in respect of such income shall be given to any person resident in Singapore who owns not less than 25% of the shares of the company paying the dividend. (5) Section 50 shall, with the necessary modifications and subject to any regulations made under subsection (1)(a), apply for the purposes of this section as if any territory to which this section and the regulations have effect were a territory with which arrangements have been made under section 49. (6) Any person granted any tax credit under subsection (1) or any regulations made thereunder on any income shall not be given any tax relief under section 48 or tax credit under section 50 in respect of that income.".". Brought up, and read the First time.”
“Sir, it is intended that the question "That the clause stand part of the Bill" be negatived, and a new clause be substituted therefor. Question put, and negatived. Clause 33 accordingly disagreed to. New Clause 33 - "Repeal 33. Section 50A of the principal Act is and re- repealed and the following section substituted enactment therefor: of section 50A. "Uni- 50A.-(1) Notwithstanding that there lateral are no arrangements for the time being in tax force under section 49 with the government credits. of any territory outside Singapore, tax credit under section 50 shall, subject to this section, be given to any person resident in Singapore for tax payable under the law of that territory in respect of - (a) any income derived from such professional, consultancy and other services as the Minister may by regulations prescribe; (b) any dividend derived therefrom; (c) any income from employment therein; or (d) any profit derived from outside Singapore by a branch in that territory of a company resident in Singapore. (2) The Minister may, in regulations made under subsection (1)(a), specify the territories to which those regulations shall have effect. (3) Where any dividend in respect of which tax credit is given under subsection (1)(b) is paid by a company which is resident outside Singapore to a person resident in Singapore who owns not less than 25% of the shares of the company paying the dividend, the tax credit shall take into account any tax paid by that company in the country in which it is resident in respect of its income out of which the dividend is paid.”
“Sir, I beg to move, In page 34, to leave out lines 1 to 7 inclusive. There is no longer a necessity for inserting a new section 50(12). The reason is that clause 33 of the original Bill has been re-drafted. Amendment agreed to.”
“Clause 29 amends section 45 to allow companies up to 10 days to pay to the Comptroller of Income Tax, the taxes which they are required to withhold under section 45 of the Income Tax Act. The period currently allowed is seven days. The extension is to take into account the non-working days in the week. The last amendment relates to the service of summonses. At present, summonses on taxpayers to attend court have to be served personally. As this is both time and manpower consuming, clause 35 inserts a new section 99A to provide for service of summonses on taxpayers by registered mail. 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] Clauses 1 to 31 inclusive ordered to stand part of the Bill. Clause 32 -”
“The next two amendments pertain to our tax incentives for the shipping industry. Firstly, clause 6 amends section 13A to extend the tax exemption currently granted to profits derived from the operation of Singapore flag ships to include the income of a shipping enterprise derived from the charter of Singapore flag ships. Secondly, clause 9 amends section 13F to extend the exemption of tax on the income of an Approved International Shipping Enterprise to income derived from the carriage of passengers, mails, livestock or goods by any foreign ship to Singapore for transhipment. Finally, the last three amendments are necessary to fine tune the existing provisions in our tax legislation. The first amendment pertains to the tax relief for maintaining a handicapped spouse. Currently, section 39(2)(ca) of the Act provides for a handicapped spouse relief not exceeding $3,500 to an individual who maintains a handicapped spouse or ex-spouse whose income in the year was not more than $1,500. On the other hand, any alimony received by an ex-wife, or any maintenance payment received by a wife separated from her husband in accordance with an order of court or deed of separation is income chargeable to tax under section 10(1)(e). Therefore, if such alimony or maintenance payment exceeds $1,500 a year, the income ceiling of $1,500 would be breached and the ex-husband or husband cannot claim the handicapped spouse relief. Clause 23 thus amends section 39(2)(ca) to provide that alimony or maintenance payment received by a handicapped woman who is divorced or separated from her spouse will not be deemed as income for the purpose of section 39 of the Income Tax Act. The second amendment extends the period for payment of withholding taxes.”
“With the increase of the employer's CPF contribution rate to 18% from 1st July 1992, the limit for tax deduction has to be raised in tandem to 18% of the assessable income from self-employment, subject to a maximum of $12,960. This will be effective from Year of Assessment 1994. Clause 23 amends section 39 to provide for this change. To encourage Singaporeans to work overseas, I have announced that unilateral tax credit will be granted for foreign tax paid on employment income derived from countries with which we do not have a tax treaty. Clause 33 amends section 50A to provide for this tax concession. Tax Changes Not Announced in the Budget I shall now deal with the remaining tax changes not announced in the 1993 Budget Statement. Two of them are to attract activities to Singapore. The first concerns double tax deductions which are currently granted to financial institutions for expenses relating to the establishment and development of approved financial activities in Singapore. This tax concession is now extended to include expenses incurred in engaging consultants in the research and development of approved financial activities. Clause 14 amends section 14J to provide for this extension. The second amendment provides for a new incentive to encourage the transfer of technology through cost-sharing agreements. Currently, payments made under cost-sharing agreements are treated as capital expenses and are therefore not tax-deductible for income tax purposes. To encourage the transfer of technology as well as to attract research and development activities to Singapore, clause 17 inserts a new section 19C to allow tax deduction of payments for technology under bona-fide cost-sharing agreements.”
“Currently, our tax law allows a married woman to be separately assessed only on her earned income and income derived from accumulated earned income. I have announced that with effect from Year of Assessment 1994, married women will be allowed to elect for separate assessment on all their incomes. Clause 34 amends section 51 to enable this change. At present, a taxpayer is able to claim the tax relief for aged parents or handicapped siblings only if they stay in the same households. As some taxpayers have legitimate reasons for living apart from their aged or handicapped dependants, although they are still supporting these dependants, clause 23 amends section 39 to allow the Comptroller of Income Tax to waive the residence requirement for claiming these reliefs. Currently, a married woman can only claim the enhanced child relief for any of her children if she also claims the normal child relief for the child. I have announced the removal of this restriction and we will now allow the claim for normal child relief to be separate from the claim for enhanced child relief. Clause 37 amends the Fifth Schedule to the Income Tax Act to provide for this change. To rationalise the tax treatment of all retirement benefits, I have announced that the maximum level of tax-free retirement benefits allowed will be pegged to the 40% compulsory contributions to CPF. Other than CPF benefits, all retirement benefits received from private employers, including gratuities and pensions, will be taxable. Clauses 3, 4, 5, and 11 amend sections 10, 10C, 13(1) and 14 to provide for these tax changes. To encourage a self-employed person to save more to provide for his own needs when he retires, Government has allowed tax deduction for his voluntary contributions to the CPF, subject to a limit.”
“Such dividends received are to be assessed in Year of Assessment 1993 instead of Year of Assessment 1994. Clauses 20, 28 and 30 amend sections 35(2A), 44 and 46 to provide for these changes. The second amendment is to cap the tax rates in Part B of the Second Schedule to the Income Tax Act. With the lowering of the corporate tax rate to 27%, the highest effective tax rate imposed under Part B of the Second Schedule to the Income Tax Act will also be limited to 27%. This will ensure that those who are taxed under the existing Part B marginal rates, such as management corporations and clubs, will in fact not be taxed above the corporate rate of 27%. Clause 24 amends section 42(5) for this purpose. GST-Related Tax Changes Affecting Individuals I will now proceed to the amendments to the Income Tax Act pertaining to the tax changes affecting individuals which are GST-related. I have announced that the top personal income tax rate of 33% will be reduced by three percentage points to 30%, with proportionate reductions in other tax brackets. In addition, personal relief will also be increased from $2,000 to $3,000. Clauses 23, 24 and 36 amend sections 39 and 42 as well as the Second Schedule to the Income Tax Act to effect this. To reward effort and enterprise, I have also granted a 5% one-off and across-the-board rebate on personal income tax payable for Year of Assessment 1993. In addition, I have also granted a $700 rebate on personal income tax payable for Year of Assessment 1994 to offset the effects of the GST. Clause 38 provides for these rebates. Other Tax Changes Affecting Individuals I have also announced six other changes which affect individuals.”
“To rectify this situation, an adjustment factor will be applied whenever losses or capital allowances under one tax rate are to be set-off against the income under another tax rate. The adjustment factor is the ratio that one tax rate bears to the other tax rate. Clause 22 inserts a new section 37B to provide for this tax change. Tax Change to Contain Health Care Expenditure Members will recall that to contain health costs and to prevent misuse of health services, I have announced that tax deductibility of expenses on medical benefits by employers will be capped at 2% of total employees' remuneration. Clause 11 amends section 14 to provide for this change. GST-Related Tax Changes Affecting Companies To ensure that the overall tax burden remains competitive internationally when GST is introduced, I have announced that the corporate tax rate will be reduced from 30% to 27% with effect from Year of Assessment 1994. The reduced rate will also apply to non-residents, trustees and executors as well as tax withheld at source on payments to non residents. Clauses 25 and 29 amend sections 43 and 45 for this purpose. Two consequential amendments are necessary as a result of the reduction in corporate tax rate. The first is to adjust the dividend franking credit mechanism. Although the reduction in corporate tax rate takes effect from Year of Assessment 1994, that is, from 1st January 1993, companies could only be informed of this after our Budget announcement. Adjustment is therefore necessary for those dividends declared in the early part of 1993, of which tax has been withheld at 30%. A transitional measure is also needed in the case of dividends declared before 1st January 1993 and received by companies with accounting periods ending before December 1993.”
“Clause 10 inserts a new section 13H for this purpose. Tax Changes to Attract Offshore Activities to Singapore To attract offshore activities to Singapore and facilitate Singapore's development into an international art and antiques market, one of the tax incentives I have announced was a 10% concessionary tax rate for approved art and antique dealers on income derived from transacting on behalf of non-residents with approved auction houses. In addition, well established auction houses and private museum operators can also qualify for the Pioneer Services tax incentive which exempts their income from tax for a period of five years. Donations to the National Museum will also be tax deductible up to twice the value of the donations. Clauses 21 and 27 amend section 37(2) and insert a new section 43L to provide for this new incentive. Approved trustee companies are currently taxed at a concessionary rate of 10% on income derived from providing specified trustee services to non-residents in respect of non-Singapore dollar investments. To further promote trustee services which are an important support to fund managers and investors, I have announced that the specified income of non-resident beneficiaries of trust where the trustee is an Approved Trustee Company will be exempt from tax. Clause 10 inserts a new section 13G to provide for this new incentive. Currently, for a company which has some income taxable at a concessionary rate and other income taxable at the full corporate tax rate, it is allowed to set-off its loss or capital allowances under one tax rate against the profit under another tax rate on a dollar for dollar basis. This dollar for dollar set-off can result in a tax reduction which is different from that based on the tax rate at which the income is taxed.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Income Tax (Amendment) Bill 1993 gives legislative effect to income tax changes announced in the 1993 Budget Statement, as well as other changes not announced in that Statement. In the 1993 Budget Statement, I have announced certain tax changes to promote an external wing to Singapore's economy and to attract new investments into Singapore. Members would also recall that I have announced several GST-related tax changes. Tax Changes to Promote an External Economy To encourage Singapore companies to venture and invest overseas, I have announced that unilateral tax credit will be granted to facilitate the remittance of foreign dividends and overseas branch profits. Clause 33 amends section 50A to provide for this tax concession. Currently, to promote the export of Singapore manufactured goods, double tax deduction is granted for expenses incurred in the promotion of such goods. To assist our companies to seek and exploit opportunities overseas, I have announced that this existing scheme for the promotion of export of goods will be expanded to cover services. It will also be extended to new activities, namely, feasibility studies, product certification and packaging for exports. I have also announced that double tax deduction will be allowed for exploring and developing investment opportunities abroad. Clauses 12, 13 and 15 amend sections 14B and 14C and insert a new section 14K to provide for these tax incentives. To encourage companies to form venture capital and regional funds to promote investments in the region, I have announced that the gains and certain investment incomes of approved venture capital and regional funds will be exempt from tax.”
“Sir, I beg to move, In page 8, line 2, to leave out from "in" to ", a" in line 5 and insert "such newspaper or newspapers as may be prescribed by regulations". I have explained in my speech the reason for this change. Amendment agreed to. Clause 6, as amended, ordered to stand part of the Bill. Clauses 7 to 22 inclusive ordered to stand part of the Bill. Bill reported with an amendment, read a Third time and passed. EXEMPTED BUSINESS (Motion) Resolved, That the proceedings on the remaining items on the Order Paper for today be exempted at this day's sitting from the provisions of Standing Order No. 1. - [Mr Wong Kan Seng]. INCOME TAX (AMENDMENT) BILL Order for Second Reading read.”
“It should not in any case affect the competitiveness of our system because supervision of the banking clearing house is no different from supervision of the banks themselves, and MAS has regularly inspected and supervised banks without any difficulties. 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 5 inclusive ordered to stand part of the Bill. Clause 6 -”
“Therefore, there is considerable advantage in having adequate capital funds. In the case of Singapore banks, their actual ratios are well in excess of 12%. So the 12% requirement is conservative. And the indications are that BIS will be planning to increase the international level beyond 8% to take care of, what I call, off-balance sheet risks which I mentioned in my speech. 8% was established by BIS because if they had put 12% as a requirement, many, many large international banks would be in trouble. So it is a conservative figure which is acceptable at the present time but it is likely to be raised in future, and we are merely anticipating events. Finally, Dr Toh has asked whether applications for mergers, if they were turned down, could be considered for appeals. The answer must be yes. There is no reason, as far as I can see, to turn down a legitimate request for merger, particularly if the subsidiaries are already wholly-owned by the banks, and it will be very unusual to refuse a merger under these circumstances. He has also said that the lifting of banking secrecy, particularly in the credit card area and other areas, might lead to a reduction of competitiveness in the Singapore banking system. I can assure him that this is not the case. Information on individual accounts is generally not releasable to anyone. It is consolidated data which is required by the supervisory and regulatory authorities which would be released under specific circumstances. We are very careful on this and it is an area which we cannot readily allow our banking secrecy to be jeopardised. So he can have my assurance that this will not prejudice our competitiveness. Finally, the same thing applies to the inclusion of the clearing house under MAS supervision.”
“For full-service local banks, the publication of the annual accounts will cost between $20,000 and $50,000 a year, depending on how much details the banks are prepared to publish. For offshore banks, the amount is about $10,000-$15,000 per bank. The total cost to all the banks currently is just under $2 million. The intention is that for the future, only full-service local banks which take deposits from Singaporeans will continue to be required to publish their annual accounts in the four languages, so that all depositors will have access to the banks' statements. In the case of offshore banks, they will only be required to publish annual accounts in one English language paper. Mr Leong has asked whether the new capital requirement would restrict the entry of new banks into Singapore. The answer is no. Singapore is already grossly over banked. We have a total of 35 banks with full banking licences - 13 local banks and 22 foreign banks with branches here. Thirty five full-licence banks for a small population like ours is gross over banking. I do not think this really restricts competition. On the question of why we are requiring local banks to have a capital adequacy ratio of 12% instead of maintaining 8% as required by BIS, the answer is very simple. The higher the capital adequacy ratio, the better for the bank. The fact remains that well-capitalised banks, eg, the Morgan Guaranty Bank in the United States, are probably more successful because high capital reserves, high capital funds, give the customer much more confidence and therefore their growth rate generally is superior. Secondly, a well-capitalised bank can also borrow at cheaper rates, issue bonds at lower rates and issue shares at lower premiums.”
“But we have to be careful to ensure that it does not increase substantially above current levels. On stored value cards, there are two types of stored value cards. One is a stored value card specific to a company which can be used only for the purchase of goods and services granted by the company. This type of stored value card is no different from buying a gift voucher. Therefore, regulation of this area is not really necessary because the risks are quite low. The area where we have to be very careful in regulating is in the issuance of what we call cash stored value cards. Such cards can be used to purchase goods from any supplier and therefore are equivalent to cash. They must be regulated because if a substantial amount of such cards are issued, it is tantamount to taking money from the public and if the card issuer goes bankrupt, or misappropriates the cash, then of course the public will lose. It is this category which requires supervision. The final point raised by Dr Ow was on the question of bank account publications. The present law requires that all banks, irrespective of whether they are local banks or offshore banks, must publish their annual accounts in the newspapers of the four official languages. This is an anachronism because when the requirement was first stipulated, we did not have such a large number of offshore foreign banks as we have now. These offshore banks which are basically involved in wholesale banking in foreign currencies with non-Singapore citizens, and to require them to publish their annual accounts in four languages is, quite honestly, a waste of money. The average cost to banks is not excessive but it is money which is not well spent.”
“These are branches of very large international banks and up to now, our policy of admitting these banks is highly discriminatory, ensuring only banks which are amongst the top 300 in the world would be allowed to come in. So there is no question that the capital requirements of the parent banks would more than meet the $800 million requirement. But to impose this excessive amount for their branches here is unnecessary because these branches will have full access to their head office funds at any time they need them. In other words, they are fully supported by their parent banks. Secondly, foreign banks, which have branches here, may have actual local capital funds which are well in excess of $1,000 million because if they want to lend substantial amounts of money, they would be required to meet the single customer limit of 25%. For example, if they have a customer who wants to borrow $50 million, they must have $200 million worth of capital before they can lend to this person. So, in fact, the actual amount of capital they have in Singapore to service their loans is already very adequate. The next question that Dr Ow asked was about credit cards and whether the bad debts have increased. Indeed, they have. In 1988, the total amount written off as bad debts was $5.4 million, accounting for 0.4% of total credit card billings. In 1992, the bad debts written off had increased to $24 million but it is not as bad as it looks because the amount of billings has increased substantially. So the $24 million written off represents 0.6% of the total billings in view of the increase in billings. By comparison, the average write-off in US credit cards is currently 6%, so we are only one-tenth.”
“Mr Speaker, Sir, I would like to thank the speakers for generally supporting the amendments to the Banking Act. There are a number of questions, some of which are overlapping, which I will take in turn. First, Dr Ow asked why the minimum capital requirement of $800 million should not be higher. At this point of time, we consider the amount adequate. Indeed, over time the minimum capital requirement will be raised but, as of now, of the six local banks, four more than adequately meet this requirement. The two smaller ones are very near this limit and should be able to attain this requirement within a year or so. This excludes the wholly-owned subsidiaries of the local banks which have much smaller capital but, in connection with the question by Mr Leong, these smaller subsidiaries would not be required to meet the $800 million requirement provided their parent banks meet the requirement. So they can ask for extensions, because their parent banks already meet the $800 million minimum requirement. And over time, we would assume that many of these banks would want to consolidate and merge. As a matter of fact, the four largest local banks have capital funds, which include shareholders' funds, well in excess of $800 million. So there is no problem in meeting this requirement in the future. The second question is why are foreign banks, which already have branches here, not required to increase their capital requirement to the same level as local banks and would it place our local banks at a disadvantage. First, I must point out that foreign banks, which have branches here, are actually only branches of international banks which account for perhaps no more than 2% or 3% of their global operations.”
“The provision of oversight powers to MAS is needed to ensure the efficient functioning of the Clearing House. Another amendment allows MAS to issue notices to banks on their operations. These would include notices on banks' licences, publication of accounts, maintenance of reserve requirements, provision for bad and doubtful debts and the submission of statistics and returns. Some of the other provisions are merely to give the force of law to administrative procedures and do not warrant any special mention in addition to what has been stated in reference to them in the Explanatory Statement. Sir, I beg to move. Question proposed.”
“However, they have pointed out that existing provisions for mergers and takeovers in the Companies Act pose considerable impediments to bank mergers, particularly in the transfer of assets and liabilities and contractual rights and obligations of the existing banks to the merged entity. Hence, the objective of the new provisions is to facilitate the merger of a bank with one or more of its wholly-owned bank subsidiaries. The new provisions would allow a bank to apply to the Minister for Finance for approval of a merger with one or more of its wholly-owned subsidiaries. When approval is given, all undertakings of the existing banks would be transferred to and vested in the merged bank. This would allow the merged bank to carry on business with minimum disruption and inconvenience to depositors and other customers of the bank. As the proposed new provisions only involve the merger of wholly-owned subsidiaries, the provisions in the Companies Act regarding corporate mergers for protection of minority shareholders would not be relevant in this case. Finally, the Bill also proposes a number of housekeeping amendments to the Act. These include the provision for MAS to issue regulations to regulate the operations of credit and charge card issuers. Presently, such power is exercised under the MAS Act. As most card issuers are banks, it would be more appropriate for such activity to be regulated under the Banking Act. It is also proposed that MAS be given the power to supervise the operation of the Clearing House which clears the cheques of banks' customers. As the Clearing House is an integral part of the payments mechanism of the banking system, the prudent management of the Clearing House is critical to the soundness and stability of the banking system.”
“The main amendments to section 47 are: (a) to allow the Singapore branch of a foreign bank to release information on foreign exchange, money-market and other transactions with other banks to its head office to enable the head office to monitor risks on a global basis; (b) to allow the Singapore branch of a foreign bank to provide information on credit facilities granted by the branch, and MAS to provide information on the operation of foreign banks in Singapore, to the supervisory authority responsible for regulating the bank's head office, provided that the supervisory authority is prohibited by its domestic law from divulging the information or gives an undertaking to MAS not to divulge the information to third parties; (c) to allow banks to disclose to other credit and charge card issuers information on credit and charge cardholders whose cards have been suspended or cancelled due to default on payments so as to minimise bad debts incurred by card issuers in respect of their credit and charge card business; and (d) to facilitate the application for a grant of probate or letters of administration by the personal representative or any person entitled to letters of administration of a bank customer who had died whether testate or intestate. The Bill introduces three main sections, 14A, 14B and 14C, on the merger of banks. Several local banks have wholly-owned bank subsidiaries. With increasing competition in the domestic market and the shortage of manpower, these local banks have indicated that they would like to merge with their wholly-owned bank subsidiaries to realise economies of scale and to increase productivity.”
“Presently, a bank is not allowed to grant substantial loans (ie, loans which exceed 15% of the bank's capital funds) which in aggregate exceed 50% of its total credit facilities. This is to prevent over-concentration of credit to a few large borrowers. It is proposed that banks with Singapore dollar loan portfolios of not more than S$100 million be exempted from this requirement. This is because such banks, mainly the offshore banks, which primarily engage in foreign currency wholesale lending activities would find it impractical to diversify their Singapore dollar lending to small customers. Furthermore, as the Singapore dollar loan portfolios of such banks are relatively small, the exemption from this limit would not pose a significant risk. Columnn: 447 With the growth in importance of international activities of banks, the operations of overseas branches have an increasingly important impact on the soundness and performance of the bank as a whole. In view of this, it is important for the head offices of banks to closely monitor the operations of their overseas branches by having access to information on these branches in order to effectively manage their global risks. In addition, from the experience of the BCCI scandal, the growth of cross-border activities of banks has also underscored the need for closer international coordination among bank supervisors. Hence, it is proposed that certain aspects of the banking secrecy provisions at section 47 of the Act be relaxed or modified to accommodate these requirements.”
“Under existing provisions, DBS Bank is exempt from certain prudential requirements, for example, the limit on investments, holding of immovable property and loans secured by immovable property, to enable the bank to perform its role as a development bank. DBS Bank has, however, now abandoned its role as a development bank and has expanded into Columnn: 446 all areas of commercial banking. The amendment therefore proposes to remove the exemptions granted to DBS Bank so that the bank would be subject to the same regulation as other banks. This will ensure adequate prudential control over DBS Bank. Members may wish to know that DBS Bank is presently able to comply with all these prudential requirements. Certain provisions of the Banking Act which have outlived their relevance and usefulness because of changes in business environment and banking practices will be relaxed. The first concerns the need for banks to publish detailed audited annual accounts in newspapers of the four official languages. Feedback indicates that the public does not study such information in depth and the requirement increases the banks' cost of operations unnecessarily. The Act will be amended to allow MAS to prescribe by regulation the requirements for the publication of banks' annual accounts. The intention is that banks which accept retail deposits in Singapore dollars from individuals would continue to publish their annual accounts in newspapers of the four languages. Those banks which do not accept such retail deposits, such as offshore banks, would only need to publish their annual accounts in one English language newspaper. MAS would also lay down the minimum information that banks would be required to publish.”
“To ensure that banking secrecy provisions are lifted only for genuine drug trafficking investigations, safeguards such as the need to establish a prima facie case of drug trafficking will be instituted. Also, assistance will only be provided to foreign authorities if this does not prejudice the sovereignty or other national interests of Singapore. The next amendment concerns new provisions at section 77A in clause 20 of the Bill to regulate the issuance of pre-paid stored value cards. Such cards are a form of "electronic cash" and can be used by cardholders to pay for purchases of goods and services at establishments which accept the card. The issuers of pre-paid stored value cards collect moneys from cardholders in advance. Cardholders are therefore exposed to the risk of loss should the issuer become bankrupt or misappropriate the cardholders' funds. It is therefore necessary to regulate the issue of such cards to protect the public against default by card issuers. Under section 77A, only licensed banks and POSB would be allowed to issue pre-paid stored value cards with the approval of the MAS. Unused proceeds from the issue of such cards would be subject to reserve and liquidity requirements. Pre-paid stored value cards that can only be used for payment of goods and services provided by the issuer of the cards would be exempt from such regulation. This is because the risk to cardholders in such cases is much lower. The amendment also empowers MAS to exempt pre-paid stored value cards issued before the introduction of this amendment Act from the regulation.”
“The failure of many banks and thrifts in the United States was partly due to imprudent lending to related parties without proper credit assessment and adequate collateral. Singapore has been able to avoid such problems because under section 29 of the Act, a bank is not permitted to grant unsecured credit facilities exceeding S$5,000 to any of its directors or any firm in which a director of the bank has an interest. The definition of "firm" however covers only sole proprietorships and partnerships but not companies. This has created a loophole for bank directors to channel unsecured lending through companies which they control. The Bill therefore proposes to amend section 29 to extend the restriction on unsecured lending to cover private and non-listed public companies in which any director of the bank owns more than 50% of the share capital or controls the composition of the board. Public listed companies and their subsidiaries are excluded because they are subject to the scrutiny of the investing public and the Stock Exchange of Singapore. Banks would be given two years to bring existing credit facilities within the new limit. Parliament has recently enacted the Drug Trafficking (Confiscation of Benefits) Act to make the laundering of proceeds from drug trafficking a criminal offence. The Drug Trafficking (Confiscation of Benefits) Act enables the investigation, tracing, freezing and seizure of proceeds from drug trafficking and allows legal assistance to be given to foreign enforcement agencies upon fulfilment of certain conditions. To implement this Act, the Banking Act would have to be amended to allow the lifting of banking secrecy provisions to facilitate drug trafficking investigations.”
“Hence, banks which engage in higher risk activities should have a commensurate amount of capital to cushion against any default or loss from such activities. The BIS currently requires banks to have a minimum capital ratio of 8%. However, this requirement covers only credit risk of banks and could be increased in future to account for other risks such as market risks of foreign exchange and equities, interest rate risks and other off-balance sheet risks. The Bill proposes that local banks be required to maintain a minimum capital ratio of 12% to ensure that they can cope with unexpected losses as well as any future increases in the capital adequacy ratio requirement by the BIS. As an indication of the importance of off-balance sheet activities, the off-balance sheet commitments of local banks account for almost 50% of their total on-balance sheet assets. Currently, local banks are able to comply with the 12% minimum capital adequacy requirement. Let me now turn to the amendments to prudential requirements of banks. Currently, a bank is not allowed to extend credit facilities in excess of 30% of its capital funds to a single customer or a group of connected customers. The amendment proposes to reduce this limit to 25% of a bank's capital funds in line with the recommendation of the BIS. Banks would be given two years to reduce existing exposures to customers which exceed the new limit. The reduction in single customer limit should not adversely impact banks' operations or reduce the availability of credit facilities to customers as the capital bases of banks have increased substantially over the years. For example, the aggregate capital funds of local banks have increased by more than 175%, from S$4.6 billion at the end of 1983 to S$12.7 billion at the end of June 1993.”
“In order to bring the capital requirements for existing and new local banks in line with each other, the Bill also proposes that existing local banks may be subject to a minimum paid-up capital requirement of S$800 million at any time from five years after the commencement of the amendment Act. This would provide sufficient time for existing local banks to comply with the requirement. The Act presently requires the head office of foreign banks to have a minimum paid-up capital of S$6 million before they are permitted to establish branches in Singapore. The Bill proposes to raise the minimum paid-up capital requirement to S$200 million in order to ensure that foreign banks which set up operations here are financially sound and adequately capitalised. This requirement will only apply to new entrants. In addition, the Bill proposes to increase the net head office funds requirement for foreign bank branches from S$3 million to S$10 million. This is to ensure that foreign banks' head offices commit adequate capital resources to their Singapore branches in relation to the scale of their banking operations here. Foreign banks will be given six months to comply. The grace period for any individual foreign bank may be extended, if necessary. The Bill also proposes to require local banks to have a minimum capital adequacy ratio of 12%. The capital adequacy ratio requirement was introduced by the Committee on Banking Supervision of the BIS as a measure of the adequacy of capital funds maintained by banks in relation to the level of risk of their loan and investment portfolios. Assets which carry a higher level of risk would need to be supported by a higher amount of capital.”