Exempt foreign income

Over the last few years, the remittance regime has been significantly relaxed. Individuals are no longer paying tax on the remittance of their foreign-sourced income. Companies, however, still pay tax on certain types of foreign-sourced income remittances. The inclination is therefore to keep any foreign-sourced income that does not qualify for exemption offshore for as long as is possible.

If a company with offshore income is running short of cash locally, reality will dictate that it remits the offshore income irrespective of the tax consequence. Survival carries a far distinctive priority than having to pay the tax later. Be that as it may, an exemption will have a strong signalling effect to those companies with offshore income accumulation overseas.

This option has a number of sub-options. One is a permanent exemption and therefore a total relaxation of our tax regime into a full territorial basis of taxation. This sub-option may have longer term consequences. Another sub-option is to grant the equivalent of an Amnesty; effectively remittance within a certain time period is exempt from tax altogether. The question is who might be the beneficiaries of this exemption. Clearly all Singapore-based companies with unremitted foreign sourced income will benefit.

Although we do not have the statistical data to validate this, our sensing is that the beneficiaries will be largely those companies with ultimate parentage in Singapore. As these companies built their external wings and trade linkages overseas, they are the most likely candidates to accumulate foreign-sourced income offshore to defer the liability to Singapore tax. They are therefore likely to be the prime beneficiaries of any such exemption. Again, we ask the Government to add this as another item in its arsenal of options.

Donations

In an economic downturn, social plights heighten. More so than ever, charitable organisations will need more funding at a time when funding is hard to come by.

Tripling the deduction relief for approved donations for a defined period of time, that is for a year or two only, ought to help. For every $1,000 of approved donation by a company, the Government forgoes a tax revenue of $540 ($1,000 x 3 x 18 per cent). The flip side of this is that it costs the Government $540 to 'stretch' a charitable effort into $1,000. It looks like our charitable organisations will need all the help they can get. So, this is something to think about.

Conclusion

This recession is quite unlike any other recession. With a world so integrated, the effort of one economy is potentially affected by the action of another economy. The tendency is to proceed as cautiously as possible.

In an article entitled When the rules don't apply published in the International Herald Tribune on 14 November 2008, economist Paul Krugman said: ' . . . When depression economics prevail, the usual rules of economic policy no longer apply: Virtue becomes vice, caution is risky and prudence is folly . . . '

And he said: 'Under current conditions however, it's much better to err on the side of doing too much than on the side of doing too little.' We concur fully.

The writers are Ang Lea Lea, tax partner and Pok Soy Yoong, former head of tax, Ernst & Young Solutions LLP.

This article was first published in The Business Times on January 05, 2009.