SECOND READING SPEECH FOR THE ECONOMIC EXPANSION INCENTIVES (RELIEF FROM INCOME TAX) (AMENDMENT) BILL 2007

This Bill will amend the Economic Expansion Incentives (Relief from Income Tax) Act or the EEI Act in short. It will give legislative effect to allow the Investment Allowance incentive, or IA incentive in short, to also be extended to the aircraft rotables used by the aerospace maintenance, repair and overhaul industry.

Investment Allowance Incentive

Sir, the IA incentive is a tax incentive to encourage investment in high technology equipment for greater productivity and to upgrade the manufacturing industries in Singapore. The incentive allows a company to deduct an approved percentage of its qualifying fixed capital expenditure from its taxable income. This is on top of the capital allowance enjoyed by the company if it is already allowed under the Income Tax Act.

Currently, the IA incentive can only be applied to the fixed capital expenditure on buildings, the acquisition of know-how or patent rights and productive equipment to be used in Singapore. The rationale is to ensure that Singapore directly benefits from the projects which enjoy the IA. The only exception where the incentive may be given in respect of fixed capital expenditure items that are used outside Singapore, is in the operation of space satellites, where a special concession has been made to encourage companies to launch and operate satellites here.

We propose this legislative amendment to allow the IA incentive to be extended to the aircraft rotables used by the aerospace maintenance, repair and overhaul industry here. There has been a trend in recent years towards companies in this industry managing and providing spares like aircraft engines, avionics and landing gears for airlines when in the past the airlines themselves would have owned these spares. These spares are known as “aircraft rotables” and would be fitted onto the aircrafts which fly around the world while the actual systems and components are being repaired in Singapore. Airlines are now demanding that aerospace maintenance, repair and overhaul companies provide aircraft rotables while their systems are being repaired, so that they can operate their aircrafts with minimal downtime.

As the aerospace maintenance, repair and overhaul industry is a key industry that we want to grow, it is important that our incentives are attractive to encourage such activities here. This Bill amends sections 66 and 67 of the EEI Act to extend the IA incentive to the aircraft rotables used by the aerospace maintenance, repair and overhaul industry in Singapore.

Consequential Amendments

Arising from the insertion of the new sections 43T, 43U, 43V, 43W and 43X and the repeal of section 43L in the Income Tax Act by Income Tax (Amendment) Acts 2005 and 2007, Clause 2 of the Bill makes consequential amendments to the definition of “concessionary income” in section 66(1) of the EEI Act.

Conclusion

Mr. Speaker, Sir, the proposed change to the EEI Act seeks to enhance Singapore’s value proposition for the aerospace maintenance, repair and overhaul industry, and to strengthen our role as an aerospace hub. The proposed amendment also reflects the Government’s commitment to constantly monitor the effectiveness of our tax incentives regime, and to keep it relevant and competitive as business models change.

Sir, I beg to move.