Speech by Mr. Louis Ng Kok Kwang, MP for Nee Soon GRC, at the Second Reading of the Income Tax (Amendment) Bill (Bill No. 27/2021)
Sir, this Bill introduces a wide array of reforms meant to update our income tax policies and provide necessary financial support to our economy.
I thank the Ministry for doing a public consultation for this Bill in June 2021 and for publishing in September 2021 its response to feedback received. Indeed, several pieces of feedback were accepted and we see their imprint in today’s Bill. I hope MOF will continue this good practice of holding public consultations and accepting productive feedback.
Mdm, I have three points of clarification to make.
Donations to DAFs
My first point is about tax deductions for donations.
Singaporeans should donate to social and community causes. To encourage this, the Government is providing tax deductions for qualifying donations up until the end of 2021. This Bill extends the end date of that scheme by two years, and I thank the Ministry for it.
However, I would like to raise questions about one kind of recipient: donor-advised funds, or DAFs. To my understanding, donations to DAFs are eligible for income tax deductions if the DAF is designated to offer grants to Institutions of Public Characters, or IPCs.
DAFs have become more popular around the world. From 2015 to 2019, donations to DAFs have risen by 110% in the UK and 80% in the US. With this growth, lawmakers and experts have criticised the rise of DAF-related “zombie philanthropy”.
This is the trend where DAFs hold on to donations indefinitely and fail to disburse them to charities. The government loses tax income immediately due to tax deductions, while society benefits only belatedly as donations sit untouched for a long time.
On this point, I would like to raise three questions.
First, can the Minister share what is the yearly dollar amount of income tax deductions linked with donations to DAFs for each of the past five years?
Second, can the Minister share what information is typically requested under Section 37, subsection 3B of the Income Tax Act? In particular, what information has it previously requested when an individual attempts to claim tax deductions using donations to a DAF?
Third, can the Ministry share how does the Government proactively guard against the problem where donors claim tax deductions for donations to DAFs while the DAFs fail to disburse funds to IPCs in a timely manner?
I know DAFs are meant to encourage charitable giving, and I have no broad concern with their existence. However, there may be room for stronger tax rules on DAFs that tie the incidence of tax deductions with the distribution of funds.
Such rules would promote stronger governance of intermediary charity groups and promise more timely benefits for society.
Data secrecy in audits
My second point today is about data secrecy.
This Bill empowers IRAS to offer people access to highly confidential government records for the purpose of auditing the administration of public schemes, such as of IRAS’s IT systems. Such people can copy government records for conducting their audits.
While this amendment may help IRAS undertake vital audits, I am concerned that it may not promise sufficient safeguards for data secrecy.
On this, I have two questions on the topic of excess for the Minister’s clarification.
First, excessive scope. What scenarios fall within and outside the purpose of the audit? Would it be reasonable for a data audit firm to create extensive digital backups stored on their own systems? How does the Government determine whether the backups are excessive in scope?
Second, excessive time. Why do the amendments not penalise permitted people from holding on to copies of government records for excessive amounts of time? Surely we all agree that even IT auditors shouldn’t be holding on to confidential government records for longer than necessary.
Copies of government records held in excessive scope and for excessive time increase the likelihood and severity of data leaks and data misuse. I hope the Government will take strong action to ensure vital government records are used and copied in a responsible way.
Incentives for vacant properties
My third point today is about tax deductions for landlords.
In this COVID-19 crisis, more than before, Singaporeans have learned the immense power landlords have over commercial tenants.
Commercial tenants have gone out of business as they struggle to pay their rent. Many groups, such as the Restaurant Association of Singapore and Singapore Tenants United for Fairness, have spoken in chorus about the lack of flexibility from landlords.
The Government has tried our best to urge landlords to do the right thing. But the pleas have often fallen on deaf ears. As a result, in the past year and a half, this House has to pass laws compelling landlords to provide rental waivers, to allow penalty-free termination of rentals, and — most recently — to match rental support provided by the Government.
In this context, the purpose of the new section 14ZH is unclear. It seems to encourage a somewhat perverse situation where a landlord can evict a failed tenant and then pay reduced taxes on their rental income.
Why should landlords receive financial incentives when they evict a tenant and keep the property vacant? The outcome is a net loss for society as productive land is left unused.
In addition, how will IRAS ascertain whether a landlord has made “reasonable efforts” to find a new tenant during the vacancy period? This loosely defined clause appears to be the only check in these amendments against the scenario I’ve described.
It would be important to clarify how IRAS intends to implement it and guard against bad-faith landlords.
Sir, notwithstanding my clarifications, I stand in support of the Bill.
Watch the speech here.