Income Tax (Amendment) Bill

(4min) Mr Louis Ng Kok Kwang (Nee Soon): Sir, this Bill covers a broad range of issues, including the implementation of measures announced in the Unity Budget and COVID-19 crisis measures in the later Budgets. 

I have spoken up previously on our COVID-19 support measures and I am supportive of the increased financial support that we are providing in these difficult times. In this speech, I will focus instead on another important issue – tax avoidance.

This Bill proposes significant changes to strengthen our tax avoidance regime. I have three points to make on these changes.  

My first point is on the test for tax avoidance arrangements. 

The Bill proposes to repeal and re-enact section 33, which allows the Comptroller to disregard tax avoidance arrangements. The test for tax avoidance is set out in the case of Comptroller of Income Tax versus AQQ, which sets out a scheme and purpose approach for interpreting section 33. CIT vs AQQ remains the landmark decision for the approach to applying section 33 and has been followed in subsequent cases. The IRAS e-Tax Guide on anti-avoidance provisions also states that the Comptroller adopts an approach based on the principles set out by the Court of Appeal in the CIT vs AQQ case.

Can the Minister clarify if the existing test for tax avoidance in CIT vs AQQ continues to apply to the re-enacted section 33?

My second point is on the principles for determining tax avoidance.

To determine whether there was tax avoidance, again, CIT vs AQQ requires that the Court look at whether the use of a specific provision in the ITA was within the contemplation of Parliament. However, the bulk of the guidance on what constitutes tax avoidance has been provided by the Comptroller in the IRAS e-Tax Guide or in case law rather than the Parliament's clarification on whether certain uses of the ITA provisions constitute tax avoidance.

Can the Minister clarify if the arrangements listed in the IRAS e-Tax Guide should be understood as arrangements that the Parliament considers as tax avoidance?

My third point is on the comptroller's discretion in pursuing tax avoidance arrangements.

Under the current Act, the Comptroller may disregard tax avoidance arrangements. The new section 33(2) proposed by the Bill replaces "may" with "must". In response to public feedback that the Comptroller should be allowed to retain discretion on whether to take action against tax avoidance arrangements, the Ministry stated that the amendment is consistent with the strong stance taken against tax avoidance in Singapore.

While I agree with the strong approach against tax avoidance, the new section 33A(7) also provides that the Minister may "for good cause, remit wholly or in part any surcharge or interest payable under this section". The surcharge here refers to the 50% surcharge that must be paid if a tax avoidance arrangement is found on top of any penalty. The ability of the Comptroller to remit the surcharge or interest appears to be slightly inconsistent with the strong stance we have taken against tax avoidance. Can the Minister clarify under what circumstances the surcharge or interest may be remitted? What constitutes "good cause"?

Sir, notwithstanding these clarifications, I stand in support of the Bill.

Response from Mr Lawrence Wong: Mr Speaker, I thank both Assoc Prof Jamus Lim and Mr Louis Ng for their comments and also for their support of the Bill.

Assoc Prof Lim highlighted the different durations in the schemes for the various capital allowances and profits, and I think he also compared it with the time frame for GST.

Mr Speaker, I would like to put it to the Members that there is really no basis for making such comparisons. Every scheme has to be considered on its own merit – the objective of the scheme, the time frame and then the continuous review of the scheme to ensure that it is relevant and serves its objective. That applies for each individual revenue scheme, it applies for each individual tax item and it also applies for our overall revenue base. We have to ensure that at the overall level, we have a revenue position that is sustainable in order to meet expenditures on an on-going basis, and that is what we will continue to do. 

On Assoc Prof Lim's comment about tax avoidance, it is an area that we continuously look at – whether or not the leakage exists and has it become more pervasive, it is hard to quantify this but we do know that tax avoidance arrangements are becoming increasingly creative and complicated. That is why IRAS indeed uses a range of analytical tools to try and detect such cases. But we also need to future-proof our anti-avoidance rules to ensure that taxpayers are sufficiently deterred from entering into such arrangements in the first place. Hence, the amendments that are being proposed here.

Let me also now address specific questions by Mr Louis Ng with respect to some of these tax avoidance arrangements. 

First, Mr Ng asked if the existing test for ascertaining tax avoidance in the landmark CIT vs AQQ case will continue to apply. The short answer is yes. What constitutes a tax avoidance arrangement does not change under the re-enacted section 33. In other words, the principles set out in the CIT vs AQQ case will continue to apply and will assist the Comptroller of Income Tax in practice.

Second, Mr Ng asked if the examples of arrangements that are provided in IRAS' e-Tax Guide should be understood as arrangements that the Parliament should consider as tax avoidance arrangements.

I should clarify, Mr Speaker, that these tax avoidance arrangements provided in the e-Tax Guide are the Comptroller's guidance to taxpayers on what he considers to be examples of tax avoidance arrangements. These examples are, in part, distilled from cases to date and are not meant to be and cannot be conclusive or exhaustive. Whether an arrangement constitutes tax avoidance will still have to depend on the facts of the case concerned and then it will go back to the provisions in the Act as well as the provisions in section 33. A taxpayer who disagrees with the Comptroller's decision may appeal to the Income Tax Board of Review and thereafter, to the Courts. 

Third, Mr Ng asked if the ability to remit the proposed surcharge or interest payable under this new section 33(A) is inconsistent with our stance against tax avoidance and the circumstances in which surcharge or interest may be remitted. 

Indeed, the proposed surcharge and other amendments to section 33, which we are proposing in this Bill, underscore our continued strong stance against tax avoidance. But we do provide an avenue in the law for the Comptroller to remit the surcharge or interest on the surcharge. But I would stress that this remission would be rarely and judiciously exercised. We cannot anticipate what the scenarios will be but in the event that something were to happen that is meritorious, then indeed we will have a remission provision that can be exercised. So, whether or not the surcharge or interest on the surcharge will be remitted will depend on the facts of each case, and whether such a remission is sound. 

Mr Speaker, let me conclude. I think Members would agree that tax avoidance arrangements are, as I highlighted earlier, becoming increasingly creative and complicated. We need to do more to ensure that our revenue base is protected. We need to future-proof our anti-avoidance rules to ensure that taxpayers are sufficiently deterred from entering into such arrangements in the first place. That is why we are putting in place the amendments in this Bill. Mr Speaker, I beg to move.

Source: Hansard