In our Stop Press of 22 July 2020, we summarise the Ministry of Finance's proposed amendments to the Income Tax Act ("ITA") and Stamp Duties Act.
On 20 July 2020, the Ministry of Finance published the draft Income Tax (Amendment) Bill 2020 ("draft Bill") for public consultation from 20 July to 7 August 2020.
The objectives of the draft Bill are: first, to effect tax measures announced in Budgets 2020; second, to clarify the tax treatment of measures announced for COVID-19 support to businesses and households; and third, to enhance the Comptroller of Income Tax (“CIT”)’s powers to safeguard public monies and to improve tax administration and enhancing the existing legislation. Of note, the draft Bill proposed a 50% surcharge be imposed for tax avoidance. Some highlights of the draft Bill are set out below:
Corporate income tax rebate
As announced in the Unity Budget, the Corporate Income Tax Rebate of 25%, capped at SGD 15,000 per company would be granted for Year of Assessment ("YA") 2020. In addition, the number of YAs for which the current year unabsorbed capital allowance and trade losses for a YA may be carried back is increased from one to three years that is subject to a cap of SGD 100,000. This will allow businesses to get a refund of up to SGD 17,000 of corporate tax paid during YA2017 to YA2019.
Prescribed payouts proposed to be exempt from income tax
The proposed new section 13ZA seeks to exempt from income tax on the prescribed payouts to both individuals and businesses that are made in connection with COVID-19 for YA2021. The prescribed payouts includes, among others, payouts under the Self-Employed Person Income Relief Scheme, COVID-19 Support Grant, Jobs Support Scheme payouts, COVID-19 Quarantine Order Allowance, Leave-of-Absence and Stay-Home Notice support programmes.
In addition, the proposed section 13ZA(2) exempts from tax benefits-in-kind and cash allowances for accommodation and basic necessities (i.e. food and transport) up to certain amounts provided to an employee who ordinarily resides outside Singapore to reside in Singapore to ensure the continuity of the employer’s trade or business or to reduce the risk of transmission of COVID-19.
Temporary increase in tax deduction cap for provisions for doubtful debts and debt securities for banks and qualifying finance companies
Amendments to the ITA were also proposed in the draft Bill to increase the maximum amount of deduction that may be allowed to a bank or qualifying finance company for provisions for doubtful debts arising from its loans and provisions for diminution in the value of its investments in securities for YAs 2021 and 2022.
Proposed amendments to the general anti-avoidance provisions
The draft Bill proposes the repeal and reenactment of section 33 of the ITA and section 33A of the Stamp Duties Act ("SDA") (often referred to as the general anti-avoidance provisions) and the introduction of additional measures to deter tax avoidance arrangements through the insertion of the proposed new section 33A of the ITA and section 33B of the SDA. These changes merits significant attention.
Under the draft Bill, the proposed reenacted section 33 comprises of seven subsections and is to a large extent an expanded variant of the current general anti-avoidance provision in the ITA. The draft Bill also seeks to introduce a new section 33(3) of the ITA, whereby it is proposed that any tax advantage obtained or obtainable by a company incorporated in Singapore, includes a qualifying deduction of that company that has been transferred to another company under group relief.
It is noted that the word "may" is proposed to be replaced with "must" in the respective sections indicating the intent to remove the discretion currently vested in the CIT to disregard or vary an arrangement and make any adjustment that the CIT considers appropriate where he is satisfied that tax avoidance has occurred. Although, it appears to be an insignificant amendment to section 33, it remains to be seen whether this could result in an increase in tax audits and additional assessments.
Introduction of a surcharge for tax avoidance arrangements
The proposed insertion of a new section 33A in the ITA provides that if the CIT imposes a liability to tax on a person for that year of assessment under section 33, or recomputes any gain, profit or loss of, any capital allowance allowed to, or any deductions for a donation made by, a person for that year of assessment with effect from YA2023, a surcharge equal to 50% of the amount of tax imposed on the person is recoverable by the CIT from the person as a debt due to the Government. Notwithstanding any objection to or an appeal lodged against an adjustment made under section 33 or assessment made under section 74, the surcharge must be paid within one month after the date a written notice of the surcharge is served on the person to whom the surcharge is imposed and in the manner stated in the notice .
Similar changes are being proposed in respect of the stamp duty anti-avoidance provisions.
The draft Bill is open for public consultation which will close on 7 August 2020. The Ministry of Finance has stated that a summary of the main comments and responses will be published by the end of September 2020.