Isetan Singapore and S44 tax credits

"Minority investors want Isetan to pay out tax credits" as per today's ST on page 29.

With $61mio tax credits, the investors are asking for only $2 dividend from a maximum $7.50 for a full advantage on the credits.

Does Isetan has the monies?
As per Jun 2006 accounts, it is reported that it has a $100mio cash in its balance sheet. Then why not pay since cashflow is not an issue?

Has the cash been earmarked for investment?
No such info presented. It is reported that the answer lies with the higher tax rate on income received in Japan as compared to Singapore.

Isetan Tokyo, which owns 61% of Isetan Singapore, would have to pay a higher tax in Japan on dividends received from Singapore.

Moral of the story

• Minority investors should not expect to receive much dividends from a company with this kind of tax complication.
• If you are investing for dividend yield, then please do your homework.

Merry Christmas!

Merry Christmas to you!

I think it will be an interesting year in 2007 for tax!

Section 44A balances

P/s - Pic of a very majestic bldg to be converted into serviced apartments.

The one-tier corporate tax system will be fully implemented on Jan 1, 2008.

Under the "old two-tier" system, individual shareholders receiving section 44 dividends can claim a refund in part or all of the corporate tax paid.

Example
Under the "old" system, company pays $80 dividend nett of corporate tax rate of 20%. The gross dividend would be $100. $20 has been paid by the company to IRAS. The $20 is placed in the Section 44 account.

Let us assume the individual shareholder's personal income tax rate is 10%. $10 (ie. $100 x 10%) would be taken out of IRAS's Section 44 account as credit against the tax payable by that individual.

What is the difference?
Under the one-tier system, the $80 received by the individual would be treated as exempt income. No adjustment of $10 would be given. Effectively, the individual pays a tax rate of 20% for that income.

What to do?
Companies, with accumulated profits which qualify for Section 44 credits and have the liquidity to pay dividends, may consider paying dividends before end of 2007.

So think about it.

Year-end Corporate Tax Planning

Mr Kang Choon Pin and Mr Russel Aubrey of Ernst & Young presented the following list of helpful tips to achieve some tax savings as 2006 draws to an end.

1. Bring forward your plans to buy plant and machinery.
2. Make accruals for expenses incurred.
3. Make provisions for doubtful debts.
4. Review your closing stock for obsolescene and damages.
5. Take advantage of lower effective tax rate for taxable income below $100,000.

Reference - Ernst & Young, You and the Taxman, Sep/Oct 2006.

GST in your F&B bill

Dear friends,

When you makan at a restaurant, the restaurant will almost definitely hit you with a 10% service charge on actual F&B that you consumed.

Let us take a simple example.

2 steaks @$25 $50.00
A bottle of Cardonnay $40.00

subtotal (1) $90.00
10% service charge $9.00
subtotal (2) $99.00

How much is the GST payable?
Answer - 5% of ($90.00 + $9.00) = $4.95

Mrs Lee, Director of Corporate Communications, IRAS said GST is applied on the final value of goods or services (including any indirect taxes/duties) consumed in Singapore.

P/S - For those who have gone to a movie recently - can share how they calculate GST for your movie ticket?

Reference - Straits Times - Inbox - page 45, Nov 19, 2006.

Hong Kong drops sales tax

What is proposed?
5% sales tax that would raise HKD3.8bio per annum.

Why the drop?
Politically inconvenience. Sadly it reflects very poor planning.

What is the current budget situation in HK?
1. About 1/3 of income earners pay tax. Very narrow tax base.
2. They have been living admist budget deficits.

I wonder how have they been funding their budgets year in year out.
More land sales? How much more land you can sell?
More Disneylands? Oops.. that is certainly a costly exercise.

Any alternatives?

• More "sin" taxes ie. on cigarettes and liquors. Maybe it is a good outcome afterall.
• Capital gains tax - very painful for Hong Kongers as "buying and selling" is a favourite past time activity there.
• More taxes on car - another possible good outcome of no sales tax - it would help with the smog.

I hope Hong Kongers will take action to avoid borrowing from the future generations and spend today.