Malaysia's new single-tier corporate tax system...

....is now in sync with Singapore's system.

Under Malaysia's old two-tier imputation system, profits earned by companies were firstly taxed at corporate rate and subsequently tax at individual level when received as dividend distributed.

Singapore's old two-tier imputation system while similar but slightly different from our neighbour's ie. profits earned by companies were firstly taxed at corporate rate. The after-tax dividend received by individuals were then "re-grossed" and subject to the individual's tax rate.

Now both Singapore and Malaysia will pay out exempt dividend ie. after corporate tax rate, to shareholders.

Yeo Hiap Seng multi million dollars tax saga continues

this is not as clear as black and light brown

Back in Apr 2007, I became aware of the ongoing ding-donging between YHS and IRAS on a "simple" definition issue that may result in YHS paying IRAS millions of dollars.

http://taxwithedgar.blogspot.com/2007/04/revaluation-surplus-and-tax-issues-with.html

What is the ding-donging about?
In 2000, IRAS wants to treat $108.2 million of the revaluation surplus of $128.8 million as a taxable gain. The tax payable by YHS would be $23.3 million.

YHS has insisted that the $108.2 million is capital in nature and thus not taxable.

What is today's news about?
Apparently, the statutory time limit for assessing profits on the Sterling project for YA 2001 expires at the end of this month. So IRAS has issued a "protective assessment" on the tax payable to avoid the situation of the "claim" becoming a legal-no-show (ie. YHS can no longer be legally obliged to answer/pay).

YHS's responses
- YHS applied for a "standover without penalty" of the tax raised by the protective assessment. IRAS granted the request.
- YHS will make a tax provision of $23.3 million and consequently issued a profit warning.

For most of the taxpayers, you pay first if you wish to object to the assessment. If you don't, you got fined. For YHS, standover without penalty was granted.

Friends, this series of "tactical" moves of creating the revaluation reserve prior to converting the land from factory use to condominium property developments, subsequently objecting to the tax assessment and dragging it over the last 6 years should be documented and reviewed in MBA/tax classes.

Property tax too will be increased for bigger HDB flats

What happened?
The Inland Revenue Authority of Singapore (IRAS) will be revising the Annual Values (AVs) of most properties, including HDB flats.

The AVs of all properties are subject to annual reviews by IRAS to ensure that they reflect prevailing market rentable values for property tax computation. This year, most AVs will be revised upwards.

What are the property tax rates?
The property tax rate is currently set at 10% of the AV of the property. For owner-occupied residential properties, the owners enjoy a concessionary tax rate of 4%.

What is the impact to you?
From Jan 1, 2008, if you are a property owner in the more centralised and popular areas like Bishan, Bukit Merah and Marine Parade, you would have higher AV increases, compared to other areas.

The average AV increase in percentage terms for the flat types are: 20% for 1-room and 2-room flats, 25% for 3-room flats, 18% for 4-room flats, 20% for 5-room flats and 18% for executive flats.

However, the increase in AVs does not translate to a proportionate increase in property tax actually payable, due to the property tax rebates that have been granted by the Government.

As part of GST Offset Package announced in Budget 2007, an additional property tax rebate of up to $100 per year in 2008 and 2009 to be handed out. Thus 90% of all HDB flat owners will not pay more property tax in 2008 even after the AVs of their flats will be increased in 2008.

In summary,

• All 1-room and 2-room flats will pay zero property tax room flats.


• 3-room flats - 60% (compared to 13% in 2007) will pay zero property tax and 40% will be paying less tax than in 2007.


• For 4-room, 5-room and executive flats, about 15% will pay more property tax but the increase in property tax is less than $40 (or about $3 per month).

Do you DARE to go to trial on tax evasion?

If you have been charged by IRAS for tax evasion, would you accept the accept the charges and submit yourself to whatever punishments befitting OR would you seek your justice in court? What did Mr Looi, our famour curry puff entrepreneur do under similar circumstances?

For income tax offences

Section 96 and Section 96A provide for statutory presumption which relieves the prosecution from having to prove an intention to evade tax, the very hallmark of tax evasion.

Where a false statement is found to have been made in the taxpayer's return, accounts or records, this is considered proof of an intention to evade tax.

You can try to challenge the presumption by having the burden of to disproving the presumption in trial.

For GST violations,

The advantage is also with IRAS, the plaintiff / prosecution. The defence ie. the alleged violators, would have to prove its case beyond reasonable doubt.

Concluding remark

To date, very few persons charged with tax evasion have been brave enough or not foolish enough to seek justice in court.

As for our Mr Looi, he pleaded guilty with any legal representation.

Mr Sharma, a partner of KhattarWong rallied the authority to level out the playing field ie. BOTH prosecution and defence are required to prove their case in court.

Tax evasion under Section 96 and 96A

For most of us, we should not bother to know the crime and punishment one could get for evading tax. We only need to know the law will come down hard on you.

But given the recent hoo and haah of going tax violators in the now glamourous occupation of being a hawker, it would be appropriate for our students and members of accounting profession to remind our clients of the consequences of tax evasion.

What is tax evasion?

Income tax evasion requires both a wilful intent to evade tax as well as one of five forms of physical conduct, namely:-

1. omitting from a tax return, income that should be included
   
2. making a false statement or entry in a tax return
   
3. giving a false answer, whether verbally or in writing, to any question or request for information from the IRAS
   
4. preparing or maintaining false books of account or other records, or authorising the same, or falsifying any books of account or other records
   
5. making use of any art, fraud or contrivance or authorising the use of any art, fraud or contrivance.

Punishment

Since December 2003, apart from the offence of tax evasion in Section 96 of the Income Tax Act, an offence of serious fraudulent tax evasion has been enacted under Section 96A.

The newer offence carries a heavier penalty, a higher fine and an extended jail time, for essentially some of the same acts that used to constitute ordinary tax evasion.

A person convicted of tax evasion under Section 96 faces a penalty of three times the tax evaded, a fine of up to $10,000 and a term of imprisonment of up to three years or both fine and jail.

The last two types of physical conduct listed above have been taken out from Section 96 and reinstated as new offences.

Under Section 96, there is a minimum jail sentence of six months upon a conviction for three or more offences, including assisting another to evade tax.

Under Section 96A, a person found guilty and convicted of two or more offences, also faces at least six months in jail.

Final Remark - I have done a simple format above for you to do email broadcasts to your hawker clients if necessary.

Different ways of getting whack for tax violations

S. Sharma, in today's BT, who is now a partner at the law firm KhattarWong (but was senior legal officer at IRAS), highlighted the difference in how prospective tax evaders are being investigated, examined and prosecuted, depending on whether it is income tax OR goods and services tax (GST) violation.

What is the difference?

• For income tax violations,

The IRAS conducts its own investigation, obtains approval from internally to institute the prosecution and conducts the proceedings in court without any talking to the Attorney-General or any Deputy Public Prosecutor.

• For GST violations,

Under Section 69 of the GST Act, a prosecution for GST evasion requires the sanction of the Public Prosecutor alone, and not the Comptroller of GST, unlike income tax evasion.


Why the difference in treatment?

Is it because GST monies are deemed to be state assets "stolen" by the tax violators? Whereas income taxes are "contributions" from tax payers for nation building.


As to Mr Sharma, the "why" is not important. He has requested the relevant authorities to harmonise the difference.

Donald Tsang's new term policy speech

Yesterday, Mr Donald Tsang, Chief Executive of Hong Kong announced how he has decided to spend the HK$58.6 billion (US$7.55 billion) budget surplus accumulated in the last financial year and which is likely to be sustained after 6.3 per cent economic growth in the first half of 2007.

1. HK$5billion giveaway in the form of corporate tax and salary tax cut by 1 percentage point to 16.5 per cent and 15 per cent respectively in the fiscal year starting next April 2008
2. Rates for property owners totalling some HK$2.6 billion would be waived for the final quarter of the fiscal year
3. Plans to spend US$19 billion on infrastructure, including new links to China/Macau, potentially creating a quarter of a million jobs

Budget surplus may come and go. So the method of distribution should not be made permanent or difficult to reverse ie. in the form of tax cuts. Waiver of collection on a temporary basis in the waiver of property rates would have been more acceptable.

Are they trying to keep up with Singapore with direct tax cuts? The similarity ends there. Singapore raised its indirect tax rate from 5% to 7%. So where is Hong Kong's indirect tax?

Furthermore, from the economic standpoint, the economy does not need further stimulation with the tax cuts given the low unemployment situation in Hong Kong.

I am in favour of well-thought through infrastructural expenditures as they would be investments for the future of Hong Kong.

Mr Tsang, don't forget to tackle the issue of broadening the tax base which you gave up towards the end of your last term.

http://taxwithedgar.blogspot.com/2006/12/hong-kong-drops-sales-tax.html

We should be hawkers.

Albeit an honest one.

Mr Looi San Cheng, 63 years old, made $1.06mio selling his famous Tip Top curry puffs from his stall in Ang Mo Kio Ave 8 over the 6 years.

Mr Looi has severely under reported his profits. He said he made $2,800 between 2001 and last year when he actually made $1.06mio.

So he now have the honour of being the first hawker to go to jail for tax evasion. He also have to pay out $487,000 for back taxes and penalty.

Saturday's article cited the citation by PM Lee on Tip Top's expansion into Harbin and Shenyang in China. I wonder this may have led to taxman's focus on Tip Top.

So all you other hawkers out there who are making millions, who have been under reporting your income and who have been recently highlighted in TV programmes, please come clean on your tax returns by emailing IRAS at iid@iras.gov.sg.

The Wongs of Cristofori Music School

the void will be filled

There are two Wong brothers, Wong Jian Jong and Wong Jian Reng, who are partners of Cristofori Music School.

The first Wong was convicted on two charges of wilful tax evasion - for making false entries in his income tax returns, claiming he earned less than he did.

Jail term - two weeks and he will have to pay penalties cum taxes totalling $671,170.80 for offences committed from 1998 to 2003. He was in charge of finance, accounts and the filing of the partnership's income tax returns.

For similar offences committed in the same period, the second Wong , who was in charge of recruitment and administration, will pay $624,353.56.

In conclusion, under reporting your income is a bad bad thing to do and you will be punished. Both Wongs have to pay a total of $1.3 mio and one of them got to go to jail.

Sad days for the Wongs.

Water Conservation Tax - You kena tax twice!!!

Karma Tsultrim Wangchuk highlighted in his/her letter to ST Forum today that we are being charged GST on Water Conservation Tax. Are we being tax on a tax? If it is, when? When have we been paying the Water Conservation Tax (WCT)?

I checked my latest PUB bill. There is an item called WCT valued at $3.54 ie. 30% of $11.82 worth of water I have used in the past month. GST of 7% is then applied on the total utilities costs and WCT. Wangchuk asked Ministry of Finance (MOF) to explain.

Ms Low Yin Leng of MOF justified the imposition of GST on WCT on the basis that:-

• "WCT forms part of the total price of water" and;


• "GST is charged on the final value of any goods or services consumed in Singapore".

Wangchuk disagrees on the following basis:-

• WCT does not form the total price of water as the proceeds from WCT go to MOF's pocket and not PUB's pocket.


• PUB must be already charging an economic viable and sustainable pricing for water it is supplying to its customers.

WCT is truly and effectively a tax with the purpose of encouraging a change in behaviour and/or redirecting flow of economic resources.

Wangchuk cited a correct practice of GST on purchase of new cars ie.

"GST is charged on the selling price LESS ARF, COE, Registration Fee and Road Tax" as these are charges imposed by the LTA on vehicle buyers and do not relate to the provision of goods and services.

This leads me to cite my own doubt.

Are the smokers paying GST on the Tobacco Tax included in the selling price of a cigarrete pack?

Not that I care or worry that smokers have been overpaying. We want some consistency. So if PUB and/or MOF has/have made a mistake, just say so, correct the error and move on. Don't try to explain your way deeper and deeper into the mess.

FRS39 Section 34A Assets on Capital account

FRS39 deals with financial assets.


Inventories and fixed assets are outside the scope of the FRS.


FRS39 requires us to categorise and differentiate our assets ie. as to whether our assets are capital or revenue in nature.


Gains or losses related to capital assets will not be taxable nor deductible.

FRS39 Section 34A Impairment claims

Old rule - General and specific provisions for bad and doubtful debts were not tax deductible.

New rule (since Mar 6, 2006)

1. Both individual and collective impairment must be recorded in the income statement and be eligible for tax deduction.
2. For specific provisions to be tax deductible - subject to detailed info being available. What info? Not define by IRAS.

Do on to yourself,

... what you have been doing on to others.

Well I am referring to the decision by IRAS to pay interest to you should they fail to issue tax refunds to you within 30 days.

At what rate? Average prime rates.

Kudos to IRAS.

All borrowing costs are now deductible

Current tax treatment

When is interest expense tax deductible?

Under section 14(1)(a), only interest expenses incurred on capital employed in acquiring income chargeable with tax is allowable against the income earned.

Only interest expenses, incurred on loans that are used to buy assets that make income that are taxable by IRAS, are therefore tax-deductible.

Thus if you used company's loan facilities to buy "Mona Lisa" for your own enjoyment, then the interest expenses are not tax deductible. But if you charge entrance fees on people who come and see the painting, it would deductible against the income you generated.

Are other borrowing costs tax deductible against chargeable income too?

Under current treatment, the answer is NO.

New tax treatment

What is the effective date?

From Year of Assessment 2008.

What has changed?

Besides interest expense, the other borrowing costs will also be granted tax deduction under section 14 (1) (a). Examples of such borrowing costs are listed below:-

1. Guarantee fees
2. Bank option fees
3. Discounts on notes and bonds
4. Premiums on redemption of notes or bonds
5. Prepayment fees/ early redemption fees
6. Extension fees
7. Increased costs due to any upward interest rate adjustments when
   certain event occurs as specified in the loan agreement
8. Interest rate cap rate premiums
9. Interest rate swap payments
10. Conversion fees
11. Cancellation fees

Why the change?

The people, who are "sufferring" from paying the bankers so many types of fees in different names all these years, have successfully persuaded the Authority to accept theses expenses as tax deductible.

On what basis?

The Authority now accepts the argument that all fees payable to the bank to secure a loan facility are part of "interest rate" payable. Without charging all these "miscellaneous" fees, the banks would ask for a higher interest rate from the borrowers anyway.

Last words - So the next time you are going to pay anything to the bank, please make sure they name the fees as one of the above 11 acceptable names above.

GST Advance Ruling System (GST ARS)

What is that?
When you seek guidance from Comptroller of Goods and Services Tax (“CGST”) in writing, CGST's reply in writing becomes an authority you can rely upon ie. legally binding.

The actual definition:-
An advance ruling is a written interpretation the CGST gives to a specific person, stating how specific provisions of the GST Act will apply for a particular business arrangement or a specific transaction.

You would not ask ARS to be applied on daily-bread-and-butter issues where they are sufficiently covered/explained under existing terms.

You would use ARS for complex business arrangement or a transaction that is never or not commonly done in Singapore before.

So what had CGST been doing in the past?
Just provide guidance that are not legally binding to entrepreneurs seeking affirmation that they are not breaking any laws or impact their bottomline estimation.

What is this applicable?
The new section 90A, together with a new Fifth Schedule, will be enacted and effective from 1 July 2007.

Any fees payable?
Of course, this is Singapore, you know. Albeit on a cost recovery basis.
From a fixed application fee, to possible hourly rate, any disbursements, fees payable for expertise needed but not available in IRAS etc etc.

HK estate duty abolition appears to boost funds

Farmers looking for their balls.

On April 26, 2007, Jane Moir reported that the abolition of HK estate duty abolition appears to boost mutual fund sales by 72% to US$24.3b last year. Total assets under management of all authorised funds grew 36% to US$91 billion. Its registered hedge funds gres 60% to US$1.66 billion.

Is it conclusive that there a direct correlation between estate duty abolition and the sudden jump in mutual fund sales? If the correlation is real, should Singapore therefore give up its estate duty collection for the greater good of its financial sector?

The abolition of the tax in Feb 2005 (after 90 years) is estimated to cost Hong Kong HK$1.5 billion (SGD$300 million). [In Singapore, the tax contributed about SGD$80 million last year.]

Let us see how Financial Secretary Henry Tang justify the move to the Legislative Council.

He agreed that it is hard to say how much of the rise was sparked by the abolition of estate duty. But in the same breadth, he told the Legislative Council during a question and answer session,

'The industry generally agrees that the abolition of estate duty has generated a positive impact and is conducive to the long-term development of our asset management business and the financial sector as a whole. We also understand from the banking trade that many private banking clients have relocated their overseas assets back to Hong Kong after the abolition."

Lawmaker Jeffrey Lam Kin-Fung sought reassurance that policymakers are recovering the lost revenue elsewhere when he asked, "How did the general public benefit from the abolition?"

Mr Tang replied - "In 2006-07 our revenue from stamp duty in stock transactions increased by 80 per cent' to HK$15 billion."

Another law-maker, Alan Leong Kah-Sit, asked - "I would like to know how the Financial Secretary can prove that these growth figures are a result of estate duty (abolition)?"

Mr Tang replied - "We cannot ask every investor if they invested into Hong Kong because of the abolition of estate duty or other reasons. Of course, every now and then we meet members of the financial services sector and hear their views and suggestions."

My view
Could the charging bulls of mainland China bourses have contributed to the billions of dollars entering Hong Kong? I really doubt the abolition of the estate duty could fully explain the rapid growth in fund management industry in Hong Kong.

Should my restaurant register for GST?

In a recent consultation with a new restaurant owner, he asked whether he should register for GST.

Here we are considering a voluntary registration ie. establishments with less than a million dollar turnover. The following discussion is strictly in the context of a restaurant business.

While GST registration relieves his restaurant from GST burden through recovery of GST incurred on business activities, it also require the restaurant to charge GST on their sales.

I advised him to review his suppliers of food items as they will constitute the bulk of costs and the percentage of total value of items with GST.

He also has to consider the impact of applying GST on his prices to customers. Are his customers price-sensitive? What is the impact to his bottomline if he decide to absorb the GST?

Thirdly, we have to consider the cost of compliance ie. preparation of GST returns every quarterly?

Revaluation surplus and tax issues with Yeo Hiap Seng

What is the issue?
Yeo Hiap Seng (YHS) said the revaluation surpluses ($215.3mio) accumulated for several pieces of land it owned are not taxable gain and has not made any tax provision.

PricewaterhourseCoopers, its auditors, has signed off on the accounts for the year ended Dec 31, 2006 while highlighting the "discrepancy" in the audit report.

The Inland Revenue authority (IRAS) has, expressed its disagreement with that position. It is currently reviewing the information submitted by YHS.

Further Explanation
YHS has chosen to make no provisions for tax liability on revaluation surpluses of $128.8 million and $86.5 million, on its tax counsel's advice that they are capital accretion.

The Sterling / Gardenvista - condominium developments
Prior to obtaining the developer's licence in Apr 1997, I presume that YHS would be saying that it was holding the land as long term investment or for its own use given F&B as its main business.

Only after Apr 1997, YHS, with the developer's licence, is now officially in the property development business.

Thus any appreciation in the value of the lands it was holding prior to that date would go to Revaluation Reserve account. Thus YHS's position that $215.3mio revaluation surplus is deemed not taxable.

In 2004, however, the IRAS said some revaluation surpluses may not be considered capital accretion. In Feb 2006, IRAS repeated that part of YHS's $128.8 million surplus would not be considered capital accretion. It asked YHS for more information so that it could update its assessments. YHS made submissions to IRAS on June 9.

Why we should kill off "estate duty" asap?

The reasons for abolishing the estate duty are:-

1. Together with income tax, GST and estate duty, it is a triple whammy for taxpayers. You are subject to tax from the first day of work till one's last day on earth.
2. We have a lopsided exemption limit of $600,000 for movable assets against exemption up to $9mio for residential property. This lopsidedness would ensnare many middle-income households to be liable for estate duty.
3. Will the existence of the estate duty discourage wealthy retirees to settle in Singapore? Maybe. Maybe not. If the tax revenue from this source is relatively insignificant, why risk it?

Why Govt's hesitation to remove the tax?

• Allow me to speculate.
• The Govt could be due to collect some real monies from the estates of tycoon Khoo Teck Puat and ex-OUB banker Lien Ying Chow. While last year's estate duty collection maybe a "mere peanut" amount of $80mio, the coming years of rapidly aging Singapore should "help" to raise the collection figures on this front.
• Alternatively, the Govt could be too busy to dedicate resources to review this area that affect only a minority but the very rich few.

Loss Carry Back System

What was then?
Companies can either carry forward their unutilised capital allowances (CAs) and trade losses to offset future incomes (i.e. loss carry-forward) or transfer these unutilised CAs and trade losses to offset profit in related companies as part of group relief.

What was wrong?
These schemes may not provide adequate or timely support to smaller businesses that run into cash flow problems, particularly during a cyclical downturn.

What is the solution?
Starting YA 2006, a one-year carry-back of current year unutilised CAs and trade losses will be introduced.

The main features of the scheme are:

a) Only current year unutilised CAs and trade losses will be allowed to be carried back for one YA immediately preceding the YA in which the CAs were granted or the trade losses incurred.

b) Up to $100,000 of current year unutilised CAs and trade losses can be carried back.

c) The carry-back system will be available to all businesses, including sole proprietors and partnerships.

d) The current requirements for carry-forward of unutilised CAs and trade losses will similarly apply when these amounts are carried back i.e. no substantial change in shareholding and nature of business.

A blanket exemption for estate duty?

To minimise estate duty - invest in residential real estate given the exemption granted for value up to $9mio - was the advice given in last week's article.

This is a heavy weightage on property as an asset class. Why? To encourage home ownership? To encourage you to stay in Singapore or to discourage you from leaving? To hold up property prices? Don't think so.

Tan Peng Boon, in today's Sunday Times, suggested a blanket exemption of up to $9.6mio in term of all assets instead of the current sublimits applied on residential properties and other assets.

Perhaps this is a convenient compromise for the government to hold on to this tax for a few more years.

Till death do your money part as taxes?

Insurance proceeds, as you probably know, are NOT automatically exempt from death duty.

While there is an exemption threshold for residential property of up to $9 million, any payouts from mortgage protection plans taken up on the properties will be taxed should the mortgagor or borrower and policy owner die.

I didn't know that until I read today's BT on "Of Death and Taxes".

I bought the standard MDTA ie. mortgage decreasing term assurance to cover my property loan exposure. The plan's death benefit would go to pay down any outstanding home loan. But didn't know it would be taxable.

So what are the possible solutions?
All the solutions except for (d) essentially try to play with this specific rule:-

"The exemption threshold for financial assets is $600,000.
Insurance policies structured as trust policies under Section 73 of the Convenyancing and Law of Property Act are automatically exempt BUT each policy will be subject to the $600,000 threshold."

Briefly they are:-
a) Enter into a "cross life" arrangement ie. you buy for me and I buy for you.
b) Assign the policy to the mortgagee bank.
c) Take a joint life policy.
d) Set up a trust. (Not advisable.)

So much for now.

QAF and S44A

P/S - Singapore River on Sunday last.

QAF, the company best known for Gardenia bread, told its shareholders that they will receive 973 PSC shares and 284 Zhongguo Jilong shares as dividends for every 1,000 QAF shares held.

Advantages to shareholders
- Allow them to seek tax credits if the corporate tax is higher than personal income tax rate.
- Shareholders have the flexibility to sell the new shares received for cash.

Advantages to QAF
- goodwill with its shareholders
- no impact on its cashflow

Balancing your accounts.

P/S Orchard Turn under construction.

1% reduction in corporate tax rate would cost $400mio a year.
1% increase in GST is expected to raise $750mio.

An 8% decline in compulsory road tax is to compensate you 50cts ERP increase in toll rate, more tolls to be operational and higher carpark charges. [I still lose. For a 2-litre car, 8% is about $120 per annum. $120 is meaningless. Btw, my car is only 1.6 litre.]

A 1.5% increase in employer's CPF is cushioned by a 2% cut in corporate tax rate and an increase in the partial exemption threshold from $100,000 to $300,000.

A 2% increase in GST is compensated by a comprehensive offset package to citizens with no change to personal income tax. [I still lose as I won't be able to get a single cent of the offset package.]

Borrowing costs other than interest

There are many other costs associated with the act of borrowing other than interest costs. Example of such costs could be professional fees, arrangement fees, statutory fees etc.

While such costs may be considered capital expenditures, these costs are currently not tax deductible.

Recent budget annoucement has indicated a willingness to reconsider this area. Look out for more details from May 2007.

Incentives for Overseas Investment

Why the need for Singapore companies to invest overseas?
In a very simple manner, to make more monies from a bigger market size.

There was a rallying call from the government under Goh's administration for Singapore companies to go overseas. I was working for one such company who took up that challenge.

We were overcame by lack of attitude preparation to operate in a foreign market and finally succumbed to the financial crisis in the late 1990s.

Recently, Mr David Sandison in his article in BT's "Tax alone cannot solve everything" raised the issue on overseas investment again. He said Singaporeans still need a push to get them out and about in the world, to take their businesses across borders and leave a footprint in the global sands.

Currently, incentives to venture abroad are virtually non-existent, and even less used, as they reward only failure through deductions for losses.

The interpretation of our tax schemes may be harsh. They were crafted to anticipate losses from early days of any investment.

Perhaps it is timely now to heed Mr Sandison's call to change the approach.

Let's talk about sex in the Boardrooms!

Humans compressed over 2 streets.

"No no," my friends. I want to say, "Let's talk about TAX in the boardrooms."

Recently a student asked me some questions on how to apply GST on the transactions that she has to invoice.

Not sure where she is in her company's management hierarchy. The fact that she is asking questions should be a comforting plus to her boss. Incorrect GST application not only invite unnecessary attention from the authority but may incur financial loss in the form of fines, penalty and manhours to remedy. A 5%-mistake (and soon a 7%) will really eat into your margin. Customer goodwill may be eroded too.

The directors of a computer gaming developer startup were grilling me on the tax implications of some corporate moves that they are considering.

In the past, tax matters were considered private, too technical for the laymen - it was something the tax department or someone from the auditor's office dealt with, with the tax authorities.

What is the price of not talking about tax in the boardroom?

• Without good tax management, you will not be considered a good boy ie. a company with good corporate governance; and
• You will not have the strength & depth to venture overseas and hold yourself up to the sometimes different standards in other jurisdictions.

If you don't about tax in the boardroom, what do you guys actually talk about? [wink.. wink..]

HG Metal and its S44A balance

Background
HG Metal, a listed company in Singapore, is a stockist and manufacturer of steel products. The company has a S44A balance of approximately $1.6mio.
It also wish to conserve funds to expand its capacity to meet growing demand.

Actions taken
To meet the contradiction in shareholders' need to take advantage of the S44A balance with dividend payout against the company's wish to conserve funds for investment, the company came out with the following initiatives:-

• For the year ended 30 Sep 2006, the company has announced a special dividend of 4cts per share ie. 3.6cts (frankable) and 0.4cts (tax exempt).

A shareholder may seek a tax refund on the "frankable" portion. The refund would depend on the difference between the corporate tax rate of 20% and his personal tax rate.

• HG Metal has also simultaneously annouced a 2-for-5 rights issue @20cts. Shareholders have the option to use part or all of the special dividend to take up the rights.

Happy New Year :)

2
0
0
7% GST

I just want to be the first to pen this down :)

Our neighbours' tax monies

China
Tax collections - SGD$745.5 billions (+21.9%)
Wow!!! So much? Who is paying all these monies?

Philippines
The VAT rate was increased from 10% to 12% in Feb 2006.
The government expects to collect SGD$10.3 billions (+21%) this year.
This is due to expanded tax base and higher VAT rate.
More roads and bridges can now be built. Pls do that.