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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“Mr Speaker, Sir, in any society, there will always be people with the propensity to gamble. It is far better for the Government to provide legal channels for gambling; as otherwise, those who wish to gamble would be encouraged to do so through illegal operators. The number of Pools' outlets of 150 has been kept constant for 14 years despite a 12-fold increase in sales. The growth of the lottery market has therefore created the urgency for new outlets. If we do not make it equally convenient for people to bet at legal outlets and offer a reasonable standard of customer service, the long queues could well drive them into the laps of the illegal operators. Retailers appointed will have to observe strict operational procedures prohibiting service to persons under 18 years of age.”
“The title of "non-executive director", I am not sure really means very much. Really, the criteria should be: what are you doing in the company, are you one of the pioneers who are the founder shareholders and therefore enjoy certain privileges or are you the people recruited at the early stages and gain stock options in lieu of salary to start up the company? A non-executive director simply does not fit into this mould. BILLS INTRODUCED AUCTIONEERS' LICENCES (AMENDMENT) BILL "to amend the Auctioneers' Licences Act (Chapter 16 of the 1985 Revised Edition) and to make consequential amendments to the Arms and Explosives Act (Chapter 13 of the 1985 Revised Edition), the Central Provident Fund Act (Chapter 36 of the 1999 Revised Edition), the Inland Revenue Authority of Singapore Act (Chapter 138A of the 1993 Revised Edition) and the Trustees Act (Chapter 337 of the 1999 Revised Edition)", presented by the Minister for Finance (Dr Richard Hu Tsu Tau); read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed. NATIONAL COUNCIL OF SOCIAL SERVICE (AMENDMENT) BILL "to amend the National Council of Social Service Act (Chapter 195A of the 1993 Revised Edition)", presented by the Minister for Community Development and Sports (Mr Abdullah Tarmugi); read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed. POLITICAL DONATIONS BILL Order for Second Reading read. 1.53 pm”
“We cannot allow that, because it is the Government who is giving the tax incentive, not the company.”
“Time qualification is necessary in order to ensure that the employee who is incentivised to join spends a significant part of his working life with the company. Whether the figure we have used is the proper criterion, I am not going to argue, because it is, to some extent, arbitrary. But I cannot measure whether a person who is spending one hour contributes more than somebody who is spending two hours. This is again a very subjective matter. But we have to establish some criteria, in terms of time, in order to ensure that a person, who joins a company to enjoy this incentive, devotes a significant amount of his working time to the company. If you get a person who may be utterly brilliant and spends one hour, but joins 10 or 20 companies, I am not sure that this is the group of people we want to incentivise. It would be very difficult to quantify anyway. On non-executive directors, I have explained earlier that a non-executive director is one who from time to time contributes but not on a full-time basis, and therefore would not qualify under the time constraints we have imposed.”
“There is no magic formula to the $100 million figure. No one really knows the borderline accurately as to which company should qualify. It is a figure we think is sufficiently large to include a lot of the new technology companies which we are trying to incentivise. We could bring the capital amount down so that some of the start-ups which require less capital would be captured. But we have to draw the line somewhere and $100 million is based on our discussions with MTI who have a feel of the type of companies they want to incentivise. So it is an experimental level which we will be prepared to reconsider from working experience over the next five years. The other question is whether the scheme should not be extended to the established companies. I did mention earlier that we are looking at whether we should have some form of ESOP scheme for these companies too, but not quite so attractive as the 50% tax rebate. Established companies need quite a lot of talent, but because they are established, they are better able to attract qualified staff because they can afford to do so. It is the new companies which are starting up and without a track record who will have difficulty in getting high quality staff to join them, and usually, they can only attract them to do so by offering share options.”
“I did say that for those who have stock options which have already been issued, they will not qualify. It has got to be new shares. Mr Inderjit Singh: I was referring to companies with less than $100 million worth of assets that have gone public and they still issue a stock option after they have gone public. Will those qualify for tax exempt?”
“So gains from sale of founder shares are not taxed. But they do not fall under the ESOP scheme. Finally, the issue of ownership of company. We did say that they should not own more than 25%. Effectively, 25% means effective control of the company and we do not wish somebody who controls the company to be offering himself preferentially large amounts of share options. So the requirement is that he should not control more than 25% of the shares of the company.”
“Non-registration in Singapore, as I have explained earlier, is a requirement to ensure that the benefits of this ESOP scheme will accrue to Singapore as a whole. Members have said that there are companies who want to be registered elsewhere but continue to operate in Singapore and I did mention that it will be considered on a case-by-case basis. If they can demonstrate that the bulk of their activities is in Singapore, even though they are not registered here, we might consider looking at it. But they have to be very sure that they are physically operating from here, there are people employed here, adding significant value before they qualify, otherwise the whole purpose of the exercise is defeated, if they register outside Singapore and they just come here to take advantage of the ESOP scheme. On working hours, I know it is difficult to define, particularly on the Internet or the info-technology type of activity, but our guidelines are flexible to an extent. We will see how this present 30 hours plus 75% work in practice. If need be, if companies find that these are awkward or impractical, we are quite prepared, as I said earlier, to amend them as we go along during the five-year period of this exercise. On the issue of whether someone who owns shares originally in the company would qualify under this scheme, the Member is probably referring to founder shares, ie, a group of people get together to start up a new company, and these people then hold shares in the company in various ways. Their contributions could be through money or ideas, and so forth. But these are founder shares. If at a subsequent date they resell the founder shares at whatever value, the gains would be capital gains and therefore not subject to tax.”
“On the first question of whether it is applicable to existing ESOPs, no, it does not. It applies to companies which issue employee stock options after 1st June. Those who have existing stock options will not qualify for this special incentive. On the second question, I think our scheme is very attractive compared to practically all other incentive schemes, partly because our basic taxes are low already and we are giving a 50% reduction of that. As the top level of personal tax is 28%, qualifying stock option gains will be taxed at 14%, which is even lower than Hong Kong, and certainly a lot more attractive than the United States, for example, where the top level tax is approaching 40%; and similarly for most countries in Europe. So I think we are quite comfortable that the scheme itself will be very attractive.”
“Second question is: How attractive this scheme will be is relative. It is relative to established markets, like the US, UK or Hong Kong. In other words, on this tax treatment, how do they compare to these established markets?”
“Mr Speaker, Sir, on the first question, at present, the intention is to require companies to be registered in Singapore to qualify for the scheme, because the objective of the scheme is to encourage the setting up of such high-tech entrepreneurship companies in Singapore. Whilst I recognise that some companies may have their registration elsewhere and conduct part of their operations here, our preference is for them to be registered here. In any case, whether they are registered here or not, they have to conduct a significant proportion of their operations here. For the time being, we want to retain the requirement that they should be registered here in the first instance. If there are specific cases where a high-tech company can demonstrate that their presence here, although non-registered, can contribute significantly to value-added in Singapore, we may look at it on a case-by-case basis. On the time spent criterion, this is intended to ensure that the employees spend a significant amount of their private time with the company. The whole purpose of the exercise is to allow the company to attract these people to help in the start-up process. If he dilutes his time among several companies, I do not think that will be very fair to the start-up company. On the question of non-executive directors, the reason for excluding them is that being non-executive, they will clearly be unable to spend sufficient time to qualify under the time constraint. Therefore, they should be excluded. Mr Chng Hee Kok (East Coast): Mr Speaker, Sir, two questions for the Minister. Will the scheme, as announced by the Minster, be applicable to existing ESOPs? If it is applicable, can a company then restructure their ESOPs to take advantage of the present scheme?”
“The scheme will operate for five years, after which the Government will review the scheme to evaluate whether the objectives of the scheme have been met. Mean- while, during these 5 years, we will continue to fine-tune the scheme as and when modifications are warranted. Further Details Details of the scheme, including vesting period requirements and treatment of discounted options, will be released by IRAS by 1st June 2000. They will be available on the IRAS website. Conclusion Through the Entrepreneurial Employee Stock Option scheme, Singapore is sending a clear signal of its support for enterprise and wealth creation, and strong encouragement to those entrepreneurs and employees who are willing to take risks. The use of ESOP is of course also relevant for the larger and more established companies and should be encouraged. But the degree of incentive will be less as established companies have less problems with attracting and retaining staff. My Ministry will be reviewing the tax treatment of ESOP for these larger companies. I will be announcing the scheme for the established companies in next year's Budget Statement.”
“Based on the existing top marginal personal income tax rate of 28%, an employee can enjoy tax savings on gains from ESOP of up to $1.4 million. Coupled with the absence of capital gains tax in our regime and our low personal tax rates, our tax treatment of stock options will be very attractive compared to most other countries. The scheme has been structured with minimum restrictions, so as to give companies the maximum flexibility to implement their ESOP plans to suit their different business needs. I will now go through some of the details of the scheme. Qualifying Companies Instead of restricting the scheme to companies in specific high-tech sectors, which is difficult to define, I have decided that for a start, this scheme will be available to companies from all sectors. Companies, whether listed or unlisted, with gross assets of not more than $100 million, will be able to qualify for the scheme. In addition, these companies also have to be incorporated in Singapore and carry out business activities in Singapore. Qualifying Employees The scheme is targetted at those employees who devote a significant portion of their working time to the company. Therefore, to qualify, the employee must work at least 30 hours per week for the company. An employee who works less than 30 hours for a company can also qualify if he spends at least 75% of his total working time per week with that company. A non-executive director will not qualify. In addition, the employee should not control 25% or more of the voting rights of the company. Effective Date and Timeframe for Review The enhanced tax treatment will apply to ESOP issued on or after 1st June 2000.”
“Mr Speaker, Sir, in my Budget Statement on 25th February this year, I said that a scheme to enhance the tax treatment of ESOP for high-tech start-ups would be announced by the end of May. Today, I am happy to announce the new "Entrepreneurial Employee Stock Option Scheme". Employee stock options or ESOP play a key role in a vibrant entrepreneurial environment. Many fast-growing high-tech start-up companies attract talent, not through high salaries, but by offering stock options to employees. An attractive tax treatment of ESOP will therefore give a strong boost to entrepreneurship and risk-taking. Moreover, as talent is internationally mobile and is increasingly rewarded by means of stock options, especially in the high-tech start-ups, we must ensure that our tax treatment of ESOP is internationally attractive, to give us a competitive edge. Entrepreneurial Employee Stock Option Scheme This new scheme aims to foster an entrepreneurial spirit in the smaller high-risk companies and its employees, many of whom have to forgo more secure and higher paying jobs to start or join these start-up companies. Under the Entrepreneurial Employee Stock Option Scheme, a 50% income tax exemption will be granted on gains arising from the exercising of ESOP. The 50% tax exemption would be granted to up to $10 million of gains, over a 10-year period. To illustrate, if an employee exercises his stock options and makes a gain of $1 million, 50% or $500,000 of the gains will be exempt from tax. Over the next 9 years, he can enjoy 50% tax exemption on a further $9 million gains from ESOP. Companies with gross assets of up to $100 million at the time the ESOP are granted will be able to benefit from this scheme.”
“Companies are allowed a tax deduction for outgoings and expenses wholly and exclusively incurred in the production of income. The grant of employee share options is the offer of a right to the employees to acquire the company's share at a future date at a certain price. When the employees exercise the options, the companies have to issue fresh shares to the employees. Under our tax system, the company does not incur any outgoings or expense in the issue of new shares. Hence, the company does not get a tax deduction. LIGHT RAPID TRANSIT SYSTEM 38. Mr Lew Syn Pau asked the Minister for Communications and Information Technology whether the Government will consider building a Light Rapid Transit system between Newton Circus and Bukit Panjang MRT stations, running along the Bukit Timah canal and up along the Upper Bukit Timah Road corridor, in view of the increasing density of residential housing and good schools located there.”
“So far, that has been the case. I will give an example. For JTC, its long-term borrowing cost has averaged about 5.5% prior to bond issues in the debt market. But these bond issues have averaged about 5%. I think so long as JTC continues to get better rates for their bonds than from bank borrowings, this is something which is preferred. NATIONAL UNIVERSITY OF SINGAPORE (Re-sitting of Pharmacology examination) The following Question stood in the name of Mr Chiam See Tong - 18. To ask the Minister for Education why was it necessary for third year medical students of the National University of Singapore to re-sit the Pharmacology examination on 18th March 2000 when they had already sat for it on 13th March 2000.”
“The bonds issued under the HDB Medium Term Note Programme are not for financing subsidised mortgage loans, but for financing HDB's development programmes and operational requirements. The bonds replace some of the HDB's loans provided to HDB by the Government at an interest rate of 2% above the CPF rate. There are no plans at present to change the current peg between the CPF Ordinary Account interest rate and the HDB concessionary mortgage rate. The source of funds for the mortgage loans will continue to be from the Government.”
“Mr Speaker, Sir, the raising of funds by statutory boards through the issue of bonds in the open market should not have any impact on the cost of services charged to the public. Statutory boards' expenditure falls into two categories. The first category includes expenditure which is partially or fully subsidised by Government for which the cost of funds is fully borne by Government. The second category includes expenditure which is viewed on a commercial basis. The funding needs of such expenditure are met either through loans from Government, through bank borrowings or through the issue of bonds in the open market. If they are borrowed from Government, the loans will carry assessed interest not significantly different from bond rates for similar maturities. Bank borrowings often cost more, especially for loans of longer maturities. Overall, the diversification of their borrowing portfolios should not raise their cost of capital, if properly structured. In the past, statutory boards have tended to rely mostly on Government loans or bank borrowings as the procedures are less complicated. Nowadays, they are encouraged to issue bonds to fund their programmes so that their costs of funds are properly priced. Such bond issues also provide additional outlets for the investment of domestic savings and contribute towards the development of our capital market. In the specific case of the link between HDB's borrowing costs and its mortgage rates, I should point out that the issue of bonds by HDB has no impact on the interest rates for the concessionary mortgage loans, which are pegged at 0.1% above the CPF Ordinary Account interest rate.”
“Mr Tay Beng Chuan asked the Minister for Home Affairs (a) whether the Singapore Civil Defence Force (SCDF) has given proper guidelines for its officers to gain access into industrial and commercial premises to perform their official duties; and (b) what safeguards are provided to prevent abuse of power by these officers or unauthorized entry by persons claiming to be SCDF officers.”
“The Government has always used taxes on liquor products as a tool to discourage excessive alcohol consumption. Our annual customs duty collection on liquor products from 1990 to 1999 are at the Table below. Liquor duties were last revised in 1992. Between 1992 and 1998, duty collection on liquor products had increased an average of 3.11% annually. This had declined slightly in 1998 due to the economic downturn. Table TOTAL DUTY-PAID RELEASES OF LIQUORS (IN DECALITRE) AND REVENUE COLLECTED ON LIQUORS Annual Financial Quantity Revenue Percentage Year Released (DAL) Collected (S$) Change In Revenue FY90 6,767,245 237,422,234 FY91 6,806,567 246,334,350 3.75 FY92 7,184,639 281,669,012 14.34 FY93 7,112,705 284,750,784 1.09 Annual Financial Quantity Revenue Percentage Year Released (DAL) Collected (S$) Change In Revenue FY94 7,498,463 301,848,136 6.00 FY95 7,878,599 318,669,581 5.57 FY96 8,141,913 330,080,320 3.58 FY97 8,618,638 351,305,374 6.43 FY98 8,424,498 337,087,196 (4.05) FY99 8,328,338 344,830,895 2.30 (Projected figures) Increases in duty collection over the years have been small. The findings from a 1998 National Health Survey conducted by the Ministry of Health also show that the overall prevalence of regular1 and binge2 drinking has remained stable from 1992 to 1998. 1 Consumption of alcohol at least 4 times a week. 2 Consumption of 5 or more alcohol drinks on a single occasion at least once during the past month. Alcoholic drink refers to one can or bottle of beer (280ml) or 120ml of wine or 30ml of spirit. Nevertheless, the Government constantly monitors the trend in national alcohol consumption and would periodically revise our duty rates as necessary. SCDF GUIDELINES FOR ACCESS OF PREMISES 3.”
“In 1998, I had said that the Government was contemplating the introduction of legislation to regulate the sale and promotion of foreign properties in Singapore. After consideration, the Government has decided against regulating foreign property sales. The main reason is that laws and regulations created in Singapore cannot provide full or even adequate protection for the purchase of properties located in foreign countries and therefore outside Singapore's legal jurisdiction. Administratively, it would be impossible to establish the veracity or adequacy of information provided by vendors of foreign properties. Caveat emptor is still the best rule for those who wish to purchase foreign properties, not Government protection. Singaporeans are well advised to transact only through reputable real estate valuers and law firms in the countries in which the foreign properties are located before they conclude any deals. MEDIA COMMENTARIES 29. Mr Noris Ong Chin Guan asked the Minister for Information and the Arts whether his Ministry is responsible for and exercises its influence on the subject and content of reports by local media companies, including media commentaries on the developments and personalities of foreign countries.”
“I have just explained that there was no misconduct in this case. I know what the Member means, that is, in general, there should be some sort of appeal board. But I think it is unnecessary because I do not believe the problem is a major one and I do not see any reason to create a so-called Ethics Board.”
“I understand that after Mr Ong Kian Min spoke in Parliament on 8th March 2000, he had been in touch with Unicorn International, which had informed him of the facts of the case. Subsequently, Mr Ong told the Sunday Times on 19th March 2000 that the matter was "a misunderstanding". However, the matter could not be left there unresolved. The "misunderstanding" had to be properly and publicly cleared up. I therefore thank Mr Ong for asking the question in Parliament, and giving me the opportunity to put the facts on the public record.”
“This threatened to make the bid uncompetitive. Unicorn was thus compelled to approach various parties to provide alternative quotes, of which only ST Marine reverted. Even ST Marine's price was not low enough. Unicorn therefore did not give the maintenance contract to either Amos or ST Marine. Mindef awarded the tender in March 1999. Unicorn failed to secure the contract. Amos complained to Mindef the same month. Mindef investigated the matter and found the complaint to be without merit. Mindef replied to Amos as follows: "Our investigations showed that Unicorn International had never requested FB Design for the agency right. We also learned that when your Company's agency agreement with FB expired in December 1998, FB did not appoint UI or any other party as their new agent." Despite this reply, Mr Ng was not satisfied. Hence, after Mr Ong Kian Min raised the matter in Parliament, Mr Ng spoke to the press to voice his grievances. Mr Speaker, Sir, the facts of the case show that the accusations against Unicorn International have no basis. I have laid out the details of the entire incident in Parliament today, because the Government takes allegations of misconduct or unfair practices by GLCs very seriously. We have made it clear, both to GLCs and to the public, that we expect GLCs to maintain the highest standards of corporate conduct. We will not tolerate any unethical or illegal behaviour by GLCs, and will act swiftly and firmly to deal with any wrong-doing. At the same time, we cannot allow the reputations of our GLCs to be smeared by unfounded allegations. The GLCs have painstakingly built up their businesses and reputations over the years. Any accusation against a GLC must either be refuted conclusively, or else be substantiated and the GLC put right.”
“At meetings conducted on 11th and 12th August 1998, Unicorn management met FB Design representatives in Singa pore. Mr Ng was present. It was agreed that: (a) Unicorn would be the party which would submit the tender bid to Mindef; (b) FB Design would submit a quote directly to Unicorn for the supply of the products required by Mindef. FB Design's quote would include Amos' contractual commission; (c) In the event that Unicorn succeeded in the tender, FB Design would pay Amos its contractual commission; and (d) Amos would provide Unicorn with the requisite services for Mindef's maintenance and service requirements during the one-year warranty period, the understanding being that Amos would give a reasonable quote for its service charges. After the meeting on 11th August, the Unicorn and FB Design representatives proceeded for dinner. Mr Ng did not attend the dinner because FB Design brought along a guest known to Unicorn, but not to Mr Ng. This was the "expensive dinner" which Mr Ong Kian Min referred to. In reality, it cost only S$375.58 for six persons, or about $63 per head. A lunch the next day with the same FB Design representatives included Mr Ng. It is therefore clear that all material discussions on the transaction took place in Amos' presence, with Amos' consent on the agreed terms. It was FB Design which chose to deal directly with Unicorn. At no point did Unicorn propose to deal directly with the Italians, or exclude Amos from the arrangements. Thereafter, Unicorn sought Amos' quote for its maintenance and service charges for the one-year warranty period. Amos quoted an unrealistically large sum, compared to figures furnished by FB Design. When this was brought to Amos' attention, they insisted on maintaining their price.”
“Mr Ng subsequently told the Sunday Times on 19th March 2000 that the GLC "then proceeded to ask a sister company to try and displace Amos from its existing servicing contract with the government agency". I have investigated the case and am satisfied that the allegations have no merit. Unicorn International acted correctly and honourably in its dealings with the local company, Amos Industries, and its Italian principal, FB Design. The facts of the incident are as follows: In June 1997, Mr Ng approached Unicorn on a possible collaboration to market to Mindef a product manufactured by FB Design. Mr Ng represented to Unicorn that Amos was the sole and exclusive agent in Singapore for FB Design. On this basis, Unicorn and Amos agreed that Unicorn would submit the tender to Mindef, while Amos would not. Mr Ng confirmed this in writing on 5th September 1997. FB Design also affirmed Mr Ng's fax that "Unicorn will be the prime contractor for the tender". On 10th June 1998, FB Design stated in a letter to Unicorn, which was copied to Amos, that Amos was its agent in Singapore and was rewarded on a commission basis, and that Amos had not been given any contractual capabilities, ie, Amos did not have the right to enter into any contracts on behalf of FB Design. Once the tender requirements were clear, FB Design would offer the product directly to, and possibly sign a contract with Mindef, or Unicorn. In addition, Mindef has confirmed that Amos was not a pre-qualified supplier and thus could not bid for the contract directly. Since Amos was not in a position to bid for the contract in the first place, there is no basis to claim that Amos decided not to enter into any joint venture agreement or non-circumvention agreement with Unicorn because it felt it could trust Unicorn.”
“Mr Speaker, Sir, during the Committee of Supply on 8th March 2000, the Member related that SMEs would probably do well to form alliances and that Government-linked companies (GLCs) are their obvious alliance partners. However, he said that he had received negative feedback to this idea, and then gave an account of the personal experience of one of his grassroots leaders. I quote: "He came across a new product in Italy that was superior and would prove to be an advantage in bidding for a certain Government tender. Being a small-time businessman, he approached a GLC to jointly pursue this Italian contact. He thought he could trust the GLC without signing a binding joint venture contract or non-circumvention agreement. When he brought the Italian principals to Singapore, the GLC partner ferried them away, bought them an expensive dinner and proposed to deal directly. With the GLC's immaculate credentials, it is no surprise that the Italian company was convinced to deal with the GLC directly, and the small guy was excluded from the arrangements." In short, according to Mr Ong Kian Min, the grassroots leader alleged that a GLC had acted dishonourably in excluding him from a business arrangement, which the grassroots leader had introduced to the GLC, and that the GLC had reneged on an agreement to jointly pursue the contact, by dealing directly with his Italian principal. The GLC concerned is Unicorn International. The Italian principal referred to was FB Design, and the Government contract relates to a Mindef tender. The grassroots leader was Mr Ng Cheng Hwee of Amos Industries.”
“Our current tax system draws a distinction between payments which are capital in nature against those which are revenue. Expenses incurred in start-up phase are unfortunately considered to be capital in nature and are therefore not allowable for tax claims. Employee stock options (ESOPs) were raised by Mr Inderjit Singh and Mr Leong Horn Kee. They have suggested that we should be much more generous in allowing tax relief for ESOPs. I have indicated in my earlier speech that we will be examining this issue in detail and an announcement will be made by end May this year. We welcome any suggestions put forward and all will be taken into consideration very seriously. Pro-family and procreation tax incentives were raised by Dr Jennifer Lee and Mrs Lim Hwee Hua. Mrs Lim suggested allowing procreation tax incentives to be extended to husbands of women who choose to stop work temporarily following child birth. She has also suggested that child relief be increased and Dr Jennifer Lee has supported these proposals. I should point out that there are already several tax reliefs and rebates to encourage family support and family formation. Tax relief serves as a form of recognition and is not intended to fully compensate for the taxpayer's expenses incurred. The Chairman: Order. It is "guillotine" time. Mr Leong.”
“This is indeed a very serious problem which is not just of concern to us but to many countries in the world, including the US, UK, Australia, Canada and the European Union. It is being studied by all tax authorities because the possibility of tax leakage is huge and no one, unfortunately, knows the answer. For the time being, the volume of cross-border e-commerce area is not very large. Where e-commerce takes place within the confines of a country, then tax is not a problem. It is when transactions take place across borders that problems arise. I can assure Members that MOF is monitoring the situation very carefully. As far as Singapore is concerned, we believe that tax leakage through e-commerce is not yet significant. Mr Inderjit Singh has suggested that we allow angel investors to write off losses incurred when their investments fail against their personal income tax. Mr Singh's concern is already addressed under the Technopreneur Investment Initiative (TII), which was introduced in September 1999. The TII aims to alleviate difficulties faced by high-tech style companies in raising funds at the start-up stage. Under the TII, an eligible investor, which can be either a company or an individual, will enjoy tax deduction for any loss arising from the sale of qualified shares held in approved start-ups within a qualifying disposal period, or from the liquidation of the start-up. The investor can offset the losses incurred against his taxable income in the current year of loss. In the event the investor's income at current year is not sufficient to absorb the total loss, the unabsorbed loss can be carried forward indefinitely to offset his taxable income in future years.”
“Because if it were true, it would be most unfortunate. Mr Ravindran is also concerned that many GLCs have in the past gone into downstream non-core businesses in competition with our SMEs. This, unfortunately, was true in the past. But Temasek Holdings has now come down quite strongly against GLCs which strayed from their core businesses and I think, in future, GLCs will be scrutinised carefully to ensure that they do not venture into areas where their presence is not necessary and their competition is unhelpful. Basically, we would like our GLCs, particularly the larger ones, to seek their fortunes overseas where the markets are much larger, and they are better placed to do so because of their assets and their capacity to expand. The subject of group relief was raised by both Mr Inderjit Singh and Mr Leong Horn Kee. This is a very old subject which has been raised many times. Mr Inderjit Singh also made many recommendations for the reform of our tax system which I will take into consideration. But at this point of time, I have to say that I am still not in favour of general group relief, although in specific instances, we have allowed it, particularly when we recognise that the applicants have legitimate reasons for doing so. Members will be interested to know that group relief is not allowed in many countries in the region. Hong Kong, Malaysia, Korea and Taiwan do not allow it. It is only allowed in UK and US. In countries where it is allowed, very tough regulations have been introduced to ensure that tax leakage does not take place. So I am not sure that group relief is something which we want to introduce at this point of time. 5.15 pm Mr Leong Horn Kee and Mr Inderjit Singh asked about the implications of e-commerce on our tax structure.”
“Sir, it leaves me with very little time before the guillotine. Mr Leong Horn Kee has asked whether the 75% ownership limit for transfer of assets between associated companies can be lowered to 51%, and whether the Government can free up tax regulations to encourage mergers and acquisitions. Mr Inderjit Singh has also expressed similar views. I have already discussed some of these points in my Budget Statement, in which I said that there will be relief on the transfer of assets between associated companies at the 75% level. We have granted this in recognition that there are legitimate merger and acquisition transactions and therefore we need to make this concession. However, moving it down from 75% to 51% is going a bit too far at this stage, but that we will take it into consideration. MOF policies are motivated by different considerations. Whilst it is generally true that we would like our smaller companies to bulk up and become large in order to compete, there are other commercial reasons why companies merge. So we cannot go overboard and make too many concessions. For all mergers and acquisitions, trading stock can be transferred at cost, as long as it becomes part of the trading stock of the transferee company. The transferred company is not required to transfer the trading stock at the open market price. For other assets, any gains from the transfer of such assets are usually regarded as capital gains and are thus not taxable. Mr Ong Kian Min has criticised the role of GLCs and made some rather startling comments about GLCs being generally predatory, have deep pockets but shallow ideas. I have heard something to this effect, but not quite in such stark terms. Perhaps he could give me more details so that I can follow them up.”
“Mr Speaker, Sir, I beg to move, "That Parliament doth agree with the Committee on the said resolution." Question put, and agreed to. Resolution accordingly agreed to. MAIN AND DEVELOPMENT ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR, 1ST APRIL, 2000 TO 31ST MARCH, 2001 (Paper Cmd No. 2 of 2000) Order read for consideration in Committee of Supply [1st Allotted Day]. [Mr Speaker in the Chair]”
“Mr Speaker, Sir, I beg to report that the Committee of Supply have come to certain resolution. Resolution reported. "That the sum of $385,000,000 shall be supplied to the Government under the Head of Expenditure for the Public Services shown in the Second Supplementary Main Estimates of Expenditure for the financial year 1st April, 1999 to 31st March, 2000, contained in Paper Cmd No. 3 of 2000", put and agreed to.”
“I do not know what he means. If what you say is true is true. Question put, and agreed to. Resolved, That Parliament approves the financial policy of the Government for the financial year 1st April, 2000 to 31st March, 2001. ADJOURNMENT Resolved, That Parliament do now adjourn. - [Mr Wong Kan Seng]. Adjourned accordingly at Twenty-Nine Minutes to Six o'clock pm. Committee of Supply - Estimates of Expenditure for the Financial Year 1st April 2000 to 31st March 2001 (Cols. 1401 - 1406)”
“Yes. When you expect a recession, you make a provision to spend money to try and mitigate the effects of the recession. This was provided for in the FY1999 budget. We had quite a large provision for additional development expenditure which we thought might be needed in case, instead of a recovery, the economy continued to slide from a low first quarter into the remaining three quarters of last year. But events turned out that we did not need it.”
“My main worry is whether the US stock markets will continue to hold for a reasonable length of time and do not retreat to the point where it affects US domestic demand, and therefore impacts on our exports. For the time being, asset inflation is something which we keep an eye on. But I do not think in Singapore, it has reached a point where drastic action needs to be taken like, for example, we did in 1996.”
“Distribute the money, that is quite a different thing altogether. I think you can do that when you take over the Government. The third question was on development expenditure. As I mentioned in my response earlier on, a provision was made which could be used in case 1999 turned out to be a poor year. Maybe the year as a whole would be a recessionary year. So some of the money was set aside to be put into civil works, like they did in Japan, in case you needed to create jobs if the situation got worse. But the economy recovered from the second quarter onwards. Second, third and fourth quarter growth rates were all very rapid. It is the swing from the first quarter, which was still very weak, to a rapid improvement in the second, third and fourth quarters - which allowed us to see that a lot of the development expenditure provisions would not be necessary. And I did say that unless they are essential expenditures, we prefer not to spend them, if you do not need them to create new jobs. You will notice that in Japan, trillions of Yen have been put into public works to no effect in order to stimulate the economy. I also mentioned earlier that the structure of our economy is basically export dependent. Stimulating domestic economy through fiscal pump-priming does not produce very good results. Lastly, the Member's question on whether asset inflation is a problem. It is indeed a problem. But the high asset inflation has not taken place here but in other countries, although we have seen some of it flowing through into our economy. But I do not think we have reached the point where we need to be overly concerned.”
“Mr Speaker, Sir, I did not say that the civil service wages have been fully restored. I did point out that it was not fully restored. And I recognise that there are sectors in the population who must be receiving less pay than they had before the recession. That is something which is a fact of life. The second question was in this whole exercise, the Government ended up as the biggest winner. Who is the Government? The money in the reserves is yours. What is the Government? The Government represents the people. The Frontbench and the Ministers are just your agents holding the money safely so that ---”
“However, we must recognise that in the end, there will remain a core of Government relating to core regulatory functions and policy formulation which cannot be corporatised. Conclusion Mr Speaker, Sir, as my speech demonstrates, we need all three sectors - the public, private and people sectors - to be vigorous, robust and enterprising for Singapore to survive and succeed in this new age of global competition and accelerated change. We must constantly be willing to try out new ideas, nimble in exploiting new opportunities and quick in responding to changing demands. At the same time we must not forget certain fundamentals. We have to live within our means - no one owes us our existence or a living. Our families are important and are the backbone of our social fabric. We must adhere to meritocracy to allow the talents of our people to be developed and harnessed the best way possible. We have to continually look forward and invest in our future prosperity. Mr Speaker, Sir, together, the people and the Government can make tomorrow a better one for Singapore if we are pragmatic in our approach and yet bold in our dreams. In this light, this year's Budget after the economic crisis represents an important milestone to meet the demands and challenges of the new economy. It is a budget in transition. If we change too slowly, we end up with the world passing us by. If we change too fast, we may end up going on the wrong path. We need wisdom, courage and a capacity for trial and error. I thank Members for all their contributions in this process. [Applause].”
“A lot of the Government's work is monopolistic and is about creating social value, which cannot be easily measured against commercial benchmarks. The impact of what Government does is mostly non-economic in nature. I would be most concerned if individual civil servants are paid according to their financial achievement on their job. We have adopted the paradigm of requiring the Ministries to get the most out of their allocated budgets, and to strive for organisational excellence and for sustainable performance. From this year, the desired outcomes of the Ministries are being published in the Budget book. Over the next couple of years, various resource management concepts and practices will be introduced for Ministries to better manage their resources to achieve even greater value for money. As for organisational excellence, every Ministry and department is looking at achieving ISO9000 certification, the People Developer Award and the Singapore Quality Class leading on, hopefully, to the Singapore Quality Award. At the end of the day, performance of Government is really about how well we are able to achieve the outcomes in areas like international competitiveness, universal education, economic productivity, high standards of living, political and social stability, and national security. While there are often no direct measures for these, there are many international rankings, comparisons and assessments made. Mrs Lim Hwee Hua is right in saying that further privatisation may be inevitable. Indeed, Government believes that all Government operations that can have bottomline and which provide services that are measurable could be corporatised, or at least converted to a statutory board. In fact, Government has just last year corporatised the Public Works Department.”
“MOE and MHA both have substantial involvement on the preventive as well as rehabilitative aspects. Government's spending on social and community development should be looked at as a whole. This sector has consistently been allocated the largest share of the Government's expenditure budget. HDB Upgrading Dr Teo Ho Pin has asked whether MOF will make available more money for town councils and CDCs to improve connectivity within a community. Dr Teo and Dr Wang Kai Yuen have also asked for more funds for the Main and Interim Upgrading Programmes (MUP and IUP) this year. Mr Speaker, Sir, in Fiscal Year 2000, provision for the Community Improvement Projects Committee to improve accessibility within a community is $45 million, an increase of 25% over FY99. The Government has not cut back on the total budget allocated for the MUP and IUP programmes, and has no intention of doing so. The Ministry of National Development has been given a total budget of $5.5 billion to carry out the programmes. As construction costs have come down significantly, it means that more can now be undertaken with the same total budget. The question of how best to structure the budget allocated for the MUP and IUP programmes, and the pace at which these programmes are to be carried out is left to MND to decide. Improving the Civil Service Mr Peh Chin Hua, Mr Inderjit Singh and Mrs Lim Hwee Hua have spoken on the need to improve our civil service. This is a fair call. Our civil service must continually strive to be among the best in the world. But we must be mindful that Government is not like businesses and cannot be motivated or driven solely by profit and loss.”
“I mentioned in my Budget Speech that the details of the SRS will take time to work out, and we hope to implement the scheme by next year. There will be extensive consultation with the private sector on the implementation details. Preparing for Ageing Several Members, including Assoc. Prof. Low Seow Chay, Mr Yeo Guat Kwang, and Mr Harun Ghani, have spoken on preparing for an ageing society. Government has endorsed in principle the recommendations of the Inter-Ministerial Committee on Ageing. Ministry of Finance is currently working with the IMC Secretariat and implementing agencies on the required budget based on cost effectiveness and financial sustainability of the recommendations. Encouraging Families, Marriage and Procreation Dr Jennifer Lee, Mr Harun Ghani, Dr Teo Ho Pin and Mdm Claire Chiang have called on the Government to do more for the family and youths. Mr Speaker, Sir, Government views family as a crucial institution in our society. One of the five key ideas of the Singapore 21 Vision is "Strong families - our Foundation and our Future". To help promote and strengthen the family as an institution, as well as to fulfill the needs of the youths and the elderly, the Ministry of Community Development and Sports will get a substantial increase of 38% in its Fiscal Year 2000 budget. Despite this, Mdm Chiang has commented that Government has not committed enough for youth interests and dysfunctional families. These are complex issues that have to be addressed through the efforts of a variety of agencies, not all of which fall within the purview of MCDS. The budget for MCDS should therefore not be viewed in isolation. For example, tackling the issues of teenage delinquency is not the responsibility of MCDS alone.”
“As for foreign losses incurred by our companies setting up operations abroad, just as their foreign income is not taxed unless remitted to Singapore, likewise, their foreign losses should not be allowed for offset against domestic income. Otherwise, Government will end up subsidising foreign ventures from domestic tax revenue. As a concession, the Overseas Investment Incentive allows capital losses from the sale of shares in, or liquidation of, approved overseas investments to be set off against the company's Singapore-sourced income. Members of this House may also wish to note that generally for countries which have group relief, overseas companies in the group are in fact excluded. Losses incurred by such companies cannot be consolidated for tax purposes. Employee stock options Members, including Mr Chew Heng Ching, Mr Iswaran, Mr Ahmad Magad and Mr Peh Chin Hua, have spoken on facilitating employee stock options (ESOPs). Assoc. Prof. Low Seow Chay has also said that it is not correct to subject gains from ESOP to tax. ESOP is a form of remuneration and gains made from exercising ESOP are hence a form of employment benefit that ought to be liable for tax. Nonetheless, as I have announced during the Budget Speech, an incentivised tax treatment of ESOPs for high-tech start-ups will be announced at the end of May this year. The intention is to take Members' comments into account in working out the scheme and we will be looking at feedback from the industries. Supplementary Retirement Scheme I would like to thank Members like Dr Wang Kai Yuen, Mr Chew Heng Ching, Mr Chay Wai Chuen and Mr Noris Ong for their various suggestions in relation to the Supplementary Retirement Scheme (SRS).”
“There are also currently already tax incentive schemes available, such as the Operational Headquarters Incentive and the Overseas Enterprise Incentive which provide for exemption for certain types of foreign source income. Group relief Mr Noris Ong and Mr Leong Horn Kee have suggested allowing group offsetting of losses to help ease the cash flow of companies undertaking new ventures which are loss-making. There were also suggestions that we allow the losses of foreign subsidiaries to be offset against the profits of the parent company in Singapore. A company sets up a subsidiary as a separate legal entity to carry out a particular activity because it wants to limit its liabilities and exposure arising from that activity. Since a subsidiary is a separate entity which can sue or be sued in its own right, there is no fundamental reason to treat it differently for tax purposes. Thus it is logically taxed separately from its parent company. Allowing group relief represents a fundamental change to our corporate tax regime and can have significant revenue implications. If group relief were allowed, profitable companies within a group may end up not having to pay tax on their profits if losses incurred by other companies within the group were included. This may open up opportunities for tax planning. It will raise the cost of tax administration because complex tax rules will need to be drawn up to prevent abuse, and has invariably been the experience of countries which allow group relief. One point which Members may not be aware of is that currently, we allow losses to be carried forward indefinitely. Hence, as long as a company can turn around, the earlier losses can be used to offset tax on the later profits.”
“If there are further schemes which can help SMEs enhance their competitiveness, the Ministry of Finance will be open to considering them. We will continue to create a pro-business environment for SMEs, and integrate them in overall economic development strategies. But, SMEs must want to help and upgrade themselves. Tax treatment of foreign-sourced income Mr Simon Tay has asked for tax incentives to lure back to Singapore interest income on the funds parked abroad by high net worth Singaporeans. Mr Speaker, Sir, in Singapore, tax is imposed on a territorial basis. In practice, this means that income arising from sources within Singapore will be subject to tax. Income arising from sources outside Singapore will not be taxed in Singapore, unless it is remitted back to Singapore. In contrast, a number of developed countries apply the worldwide basis of taxation, taxing both the domestic and foreign sources of income of its residents as income arises. We are not in favour of exempting or taxing foreign income remittance at a lower rate while domestic income is taxed in full. Doing so will only create loopholes for residents to channel Singapore income offshore to low-tax countries or to tax havens, and to remit it later at a tax advantage. Singapore will risk being regarded as a tax haven, with the result that our foreign investors will be penalised with anti-tax avoidance measures. In any case, Singapore enjoys a comprehensive network of double tax treaties and also provides generous unilateral tax credit. Coupled with our low corporate tax rate of 26%, this means that most foreign income that had suffered taxes elsewhere will not have to suffer additional tax when remitted to Singapore.”
“Government also has in place various schemes to provide affordable IT training or to help defray part of the cost of IT courses. These include the ONE Learning Place, the IT Coach, the Critical IT Resource Programme, the Skills Development Fund and the Skills Redevelopment Programme. Developing SMEs Mr Inderjit Singh, Mr Kenneth Chen, Mr Gerard Ee and Mr Noris Ong have asked for more assistance, such as tax concessions, for SMEs to participate in the knowledge-based economy. I should point out there are limitations in using the tax route to help SMEs develop. This is because SMEs do not pay much tax in the first place. Based on 1998 tax collection, companies with assessed income of $100,000 or below accounted for only 1.7% of the net corporate tax assessed. The Government has therefore chosen to assist SMEs comprehensively via grants, loans and technical assistance schemes. The Productivity and Standards Board released last year a 10-year strategic plan, SME21. Specifically, SME21 will groom innovative high-growth SMEs so that, over time, a steady stream of SMEs can reach world-class status. The aim is to treble the number of local SMEs with sales turnover of $10 million and above, from 2,000 to 6,000 by year 2010. Secondly, SME21 aims to upgrade the low-productivity SME sectors, such as the retail and other domestic service sectors. Thirdly, SME21 aims to create a knowledge-based, pro-enterprise environment. For instance, e-commerce, if embraced and harnessed by SMEs, will open up vast opportunities and remove the traditional barriers to SME growth. The aim is to quadruple the number of SMEs with e-commerce transactions from 8,000 to 32,000 by the year 2010.”
“A double tax deduction scheme will benefit primarily the profitable and bigger companies, and will provide only limited help to the loss-making and smaller companies. Larger companies, defined as those with more than 500 employees, currently spend about 6.3% of payroll on training, whereas the figure for smaller companies with less than 50 employees is 2.3%. Hence, the challenge is to encourage SMEs to intensify their workers' retraining efforts. For these companies, tax incentive is not the most appropriate remedy. Mr Chew Heng Ching, Mr Ong Ah Heng and Mr Leong Horn Kee have suggested tax relief or co-payment grants to every Singaporean or family to enroll in an IT course or to buy a computer. The Government is well aware that as we move towards a knowledge-based economy and an information society, the risks of fault-lines developing between the IT-savvy and the non-IT savvy will increase. It is important that IT courses and PCs be made accessible to all Singaporeans. This is not a problem for the young, who are getting such exposure and access in schools and tertiary institutions. What we need is to address the needs of those who are not schooling and who have no access to PCs because they cannot afford them. For these people, the suggestion of tax relief or a co-payment scheme will not be the best solution. After all, 65% of taxpayers base currently do not pay taxes. A targeted effort will be more effective in helping Singaporeans who really need such assistance. IDA is setting aside $25 million over the next 3 years to work with self-help groups and grassroots organisations to offer used PCs bundled with free Internet access and basic training to some 30,000 low-income households. Free broadband access will be made available at community centres and clubs.”
“NSTB and partnering agencies are in the process of working on the next wave of T21 implementation, and a second set of changes in rules and regulations will be forthcoming. Helping workers adapt to knowledge-based economy Members, including Dr Tan Boon Wan, Dr Ong Chit Chung, Mr Hawazi Daipi, Mr Seng Han Thong and Mr Ong Ah Heng, have asked for more measures to help especially the less educated or older workers cope with the demands of the knowledge-based economy. Mr Speaker, Sir, the Government accords high priority and has already put in place many assistance schemes to encourage the training and retraining of our workers. For the upgrading of the technical skills of workers, the Initiative for New Technology (INTECH) programme under the Economic Development Assistance Scheme (EDAS) has a total of $800 million. As part of the Manpower 21 initiative, the Government has also launched a $200 million Manpower Development Assistance Scheme (MDAS) to promote skills upgrading for the lower-skilled workers. Under the MDAS, a budget of $110 million is allocated to Workforce Development Programme, comprising Skills Redevelopment Programme for unskilled and semi-skilled mid-career workers, and Strategic Manpower Conversion Programme for professionals. A budget of $40 million is earmarked for the development of the National Skills Recognition System to establish and train workers in clear standards of competency. The Government is also providing $50 million for MOM to develop learning infrastructure to assist and facilitate industries to build up their own capabilities to provide training for workers. Given the abundance of schemes to help workers' training and retraining, there is no pressing need to give more tax incentives, such as double tax deduction, on training.”
“This is what our Government hopes to achieve by developing Singapore into a globally competitive knowledge economy. To this end, as mentioned in my Budget Statement, we will actively pursue the economic strategies mapped out by the Committee on Singapore's Competitiveness (CSC). An important key to Singapore's success in the new economy is innovation and enterprise, creativity and entrepreneurism. What Government can and should do to promote innovation and enterprise is capability-building. This explains our heavy investments to educate and train our children and workers, and the continuous effort to fine-tune our education system and workers' training. This is so that they will have the ability and attitude to constantly learn and adapt in the new economy. We must never forget that the majority of our people will still be employees, and only a minority will strike out on their own as entrepreneurs. But, for Singapore to prosper, we need every Singaporean - not just entrepreneurs but employees as well - to be enterprising and innovative. To encourage entrepreneurship, Government launched the Technopreneurship 21 or T21 initiative last year. Under T21, we aim to create a pro-enterprise environment, enhance venture investment and financing in Singapore, provide a conducive environment for talent to congregate, and infuse in the population a culture of innovation and enterprise. Thus far, we have, among others, introduced a Technopreneur Investment tax incentive and Qualified Employees Stock Options Scheme, allowed technopreneur home offices, set up a US$1 billion Technopreneurship Investment Fund (TIF) to draw more venture capital activities and talents into Singapore, and revised the Bankruptcy law.”
“5% corporate tax cut is not a replacement for the 10% corporate tax rebate granted during the crisis. The tax cut is intended to ensure that our tax rates remain competitive. A 1/2% tax cut will therefore take effect from the next Year of Assessment, which follows our normal practice when making adjustments to our tax rates. As to whether we will be cutting our corporate tax rate further, I had announced in the FY93 budget debate that Government's medium term target rate for corporate tax is 25%. We are now very close to this target. But I cannot say how low our corporate tax rates will be in future, as it will also depend on what other countries do. What we do know is that we will have to do whatever is necessary to compete to attract investments and talent to locate and stay in Singapore. Government's Role in the New Economy Members have expressed disappointment that the Budget does not appear to address the transition to the new economy. Mr Speaker, Sir, I think this is a misperception. While there may not be many new initiatives announced in the Budget, this is because Government had recognised the need early and has already launched many initiatives. We have, over the past years, put in place and are continuing to support many programmes covering education, training, infrastructure and manpower development. These include the IT Master Plan in the schools, Thinking Schools, Learning Nation Vision, Manpower 21 and the Technopreneurship 21 initiatives. Mr Chng Hee Kok has asked how Government intends to promote growth in the new economy. Mr Speaker, Sir, the new economy, as exemplified by the United States, is one in which productive investments, deregulation and the leveraging of technology raises productivity, and allows higher economic growth at low inflation.”