Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The publication of this Bill, both in the Federation and Singapore, has aroused some comment in the Press and elsewhere. No doubt partly because of this, the Federation Government decided to withdraw their Bill at the Second Reading, and this gave rise to hopes that we in Singapore might do likewise. Actually the reason why the Federation Government withdrew the Bill was not that they wavered in their resolve to implement the policies underlying the Bill. It became apparent to both Governments that much of the objections raised against the provisions of the Bill rested on misunderstandings and misconceptions. Accordingly it was agreed between the two Governments that a meeting of their Finance Ministers, with Government Backbenchers and their official advisers could profitably discuss public response to the Bill and how best the provisions of the Bill could be explained and presented to the public. A meeting duly took place in Kuala Lumpur on the 0th of April and agreement was reached on all points. This meeting proved most useful in that it drew attention to many points on which public disquiet had arisen, and the reasons why this came about. As a result of this meeting, a number of amendments were agreed upon, all of which are of a minor nature, and I will move these amendments at the Committee Stage. But first I wish to discuss some basic considerations. Income tax legislation must be as close as possible in the two territories. And this is no more than a realistic admission of the essential economic unity of the two countries. At all stages of the drafting of the Bill, continuous discussions took place between the two Governments both at official and Ministerial levels. This Bill represents the fruition of the co-operative effort made by the two administrations in tackling a problem common to both. I may, perhaps, be allowed to place on record the keen and detailed personal interest and initiative taken by my Federation opposite number, the Hon. Mr Tan Siew Sin, in the drafting of the Bill now before us. His contribution to our deliberations was a most valuable one, as my colleagues who accompanied me to Kuala Lumpur can testify. In view of the interest taken by certain sections of the public in this Bill, I consider it necessary, at the Second Reading, to discuss the principles of the Bill in more detail than is perhaps customary in this Assembly. Many professional and trade organisations have written to me expressing their opinion on various clauses of the Bill. This is not the proper place to answer these bodies but there is a common thread running through much of what they have to say and it would not, therefore, be out of place to refer generally to some of these. I shall, of course, be sending detailed replies to these associations in due course. Let, me now deal with the specific clauses of the Bill. Clause 1 provides that the Bill shall come into operation with effect from the 1st of January, 1960, unless it is otherwise expressly stated. A harmless enough provision. But it has given rise to the charge that this constitutes retrospective legislation. Now, Sir, restrospective legislation is not unknown in the annals of Income Tax legislation - I have been advised that there are, for instance, section 20 of the U.K. Finance Act, 1922 and section 242 of the U.K. Income Tax Ordinance, the details of which, need not detain us here. But clause 1 of the Bill cannot be cited as an example of retrospective legislation. Tax assessments relate to a year of assessment and to allow amendments to operate as from the date of the passage of the Bill would lead to anomalous assessments during the year. For instance, the Bill introduces a new element, namely, the taxation of incomes derived from certain types of settlements. It would be wrong to tax such incomes during the current year, when the assessments are raised after the passage of the Bill and exempt those assessed before that date. Clause 2 has not aroused much controversy. It gives the Minister authority to issue to the Comptroller-General or the Comptroller directives of a general character not inconsistent with the provisions of the Ordinance. However, I note, in the Notices of Amendments to Bills in Committee that the clause does not meet with the approval of the Member for Farrer Park. I do not intend to anticipate his objections, and will now move on to clause 3, which regulates the exchange of information between the Tax Administrations of the Federation of Malaya; and Singapore. Again the Member for Farrer Park does not wholly approve the clause as it stands, but we shall doubtless come to that in Committee stage. In clause 4, we come against what looks like a minor outcry. This clause provides that income from settlement shall be deemed to be the income of the settlor if the beneficiary is a relative of the settlor and if he is unmarried and less than 21 years of age at the commencement of the year of assessment. In simple language, this means that a man cannot reduce his tax liability by, for instance, giving shares in his business to his young children. When you go through the Income Tax files of certain persons, you will be astounded at the number of boys and girls who are nominal partners or shareholders of the businesses of their fathers. In some families, hardly is a baby born before he becomes a registered partner or shareholder. Well, all this is going to stop and about time too. But this does not prevent some people raising objections to clause 4. Settlements made by parents in favour of their children it is claimed, is a singularly Eastern virtue, inspired both by motives of prudence and love of the family. Why should virtue be discriminated against? Mr Speaker, Sir, I am all in favour of the principle that virtue should be rewarded. In a well ordered society virtue will doubtless bring about its own reward in, for instance, the form of greater happiness. But in the imperfect world we live in, this does not always happen and so some people lead a life of virtue in the hope of a reward in the hereafter. But it is a novel proposition that the reward for virtue should be given by a Minister for Finance here and now, more especially so when its exercise would lead to a diminution of the State Revenues. It is therefore not possible to agree to the request that income from all forms of settlements to minor relatives be exempted from taxation. Nor is the Government willing to allow exemption in respect of income from irrevocable settlements in favour of minor relatives. One criticism against clause 4 which I have come across is its allegedly retrospective effect on settlements previously entered into. I cannot see how the, question of retrospective taxation comes in at all since these settlements will be taxed for the first time in 1960. And it would surely be inequitable to tax future settlements and not existing ones. Clause 5 strengthens the hands of the Comptroller against evaders of income tax. The need for these powers are so apparent that not much need be said other than to state that these powers are perfectly normal ones and are contained in the taxing legislation of most countries of the Commonwealth. Clause 6 requires all businesses to keep proper records of their transactions. Under the existing legislation a person need not keep any records at all unless the Comptroller specifically directs him to do so. And of course when matters have reached this stage, much damage has already been done. The purpose of the clause is to make tax evasion more difficult to carry out and more easy to detect and punish. No one would object to that. It is necessary, in the application of this section of the Bill, to frame a proper strategy. It is important that we do not waste time and effort straining after the small fry while allowing the big fish to escape. I have discussed this matter with the Comptroller, especially the application of clause 6 (1) (b). This requires all businesses with gross receipts exceeding $18,000 a year from sales of goods or $12,000 a year from the performance of services to issue serially numbered receipts. The Comptroller under sub-clause (3) has the power to waive this requirement in respect of any person or class of persons. It has been agreed that for the current year of as sessment, the following categories of persons will be exempted from the requirement to issue serially numbered receipts:-
(i) All hawkers unless individually directed by the Comptroller to issue receipts. (ii) Market and roadside stallholders (not shop-keepers) unless individually directed by the Comptroller to issue receipts. (iii) Retail traders carrying on businesses in premises for which the rent paid does not exceed $50 per month and not more than three persons assist in carrying on the business. (iv) All traders whose gross receipts did not exceed $36,000 in the previous year. (v) Taxi drivers, trishaw-riders and self-employed boatmen plying for passengers in the harbour. These are extensive exemptions. If any business not covered by the above wishes to obtain exemption from the provisions of sub-clause (1) (b), it may apply to the Comptroller. It may be appropriate for me to say something about Government's policy in this matter. There are two aspects of the question I want to discuss. First there is the general problem of inadequate record keeping and accounting systems of private businesses. The second deals with possible differences in the administration of this part of the income tax law as between Singapore and the Federation. Now as regards the first problem, it has been a long standing complaint that the taxpayer who discharges in full his tax liability are the salaried employees and the public corporations with modern accounting systems. Other persons, in cluding sole proprietorships and partnerships, are suspected of extensive tax evasion because of the inadequate system of record keeping. If you are paid a salary of $1,000 per month, you can hardly hope to pretend to the Comptroller that you did not earn such an amount. But there is no assurance that receipts from miscellaneous small and medium businesses are properly accounted for. To ensure proper accounting in this sector of the economy would mean not merely the passage of the necessary law. There are two further requirements. First the machinery of enforcement must be built and geared into action. Next there must be widespread consciousness among the public who buy things that the retailer must be made to observe the law. When the public is aware that tax evasion is a reprehensible crime whose victim is the public itself, then we shall be able more adequately to enforce the law. It will take time and effort to build up public opinion along these lines. This we must and shall do. Coming to the possible different application of this clause as between the Federation and Singapore, it must be remembered that the scale of personal reliefs in Singapore for the time being is higher than that in the Federation. So long as this is so, the Comptroller in Singapore can be freer in the exercise of his powers of exemption under sub-clause (3). But the position must be kept under continuous review, and in principle it is desirable that in the Bill itself the limits for automatic exemption from the issue of receipts should be kept identical in both territories. We may now move on to clause 7. This requires an employer to retain for a period of 30 days any moneys owing to an employee who has ceased employ ment with him, unless the Comptroller releases him from this obligation before then. The penalty for infringement is laid down in clause 15. Some employers have expressed the fear that under clause 15, they may be saddled with the tax liability of an employee who disappears as soon as he has received his pay packet. This apprehension is groundless. For if the employer does not hold any money payable to an employee, as would be the case in the instance quoted, he is free from any obligation under clause 7. Some explanation is due for the extension, provided by clause 8, of the period, during which additional assessments may be raised, from six years to twelve years. It has been found impos sible to dispose of all cases of suspected evasion given the present number of experienced staff. The position is improving but there is a backlog of cases arising from the post-Korean War boom years of 1950-52. It is not easy to obtain convictions for fraud but the proposed amendment will ensure that omissions of income, when discovered, can be included in the assessments for the relevant years and that the tax not lost forever. Clauses 9 and 10 introduce a radical change in regard to the payment of tax which is the subject of appeal or objection. Section 85 of the Principal Ordinance, which is repealed by clause 9, allows the deferment of payment of disputed tax until the objection or appeal is determined. Clause 10 lays down that the tax must be paid first though the Comptroller may at his discretion allow an extension of time. These new proposals have caused agitation in certain quarters. Fears have been expressed that these clauses now give the Comptroller untrammelled power to ruin a person, if he is so disposed. The critics would hardly be satisfied with the argument that there is no reason to suppose that the Comptroller would be so disposed and would not exercise his powers other than in accordance with accepted principles of tax assessment. The lurking fear remains. Supposing the man, acting in all honesty, makes a mistake? I propose to defend these clauses on three grounds. First, let us consider how the large majority of disputed assessments arise. Let us stick to real facts and practices and not move into the world of hypothesis and fancy. The great majority of disputes over assessments are those raised in consequence of information obtained on investigation. These reveal an accretion of assets whose sources the taxpayer cannot explain satis. factorily. This, in itself, does not justify a prosecution for fraud. But the possession of these assets is not in dispute and it is in such instances that assessments are raised and almost invariably disputed. The tax therefore is only a part of these assets and it is not possible for the assessee to be made bankrupt solely by virtue of his tax liability unless he has in the meantime squandered his assets by extravagant and possibly profligate dealings. The second reason why the present system of deferred payments must cease is that it is only too apparent that too many taxpayers are taking advantage of the existing legislation to postpone the day of payment. On the 31st December, 1959, the amount of tax outstanding on objections was no less than $30 millions. If we apply the current rate of interest, this would mean a loss to the revenue on interest alone of nearly $2 millions a year. It is therefore obvious that the present position is utterly scandalous and cannot be allowed to continue. Finally for those who consider that the new proposals give abnormal powers to the Comptroller, let me say that similar provisions appear in the tax statutes of India, New Zealand, Australia, Cey lon, Canada and Hong Kong. Hong Kong has never acquired the reputation of harshness towards businessmen and when their Income Tax Ordinance closes this particular loophole, we are well advised to do likewise. The remaining clauses of the Bill are not controversial, except perhaps for clause 14. The objects of all these clauses are described in the explanatory statement to the Bill and I need not therefore dwell upon them except for clause 14, over which a great deal of the apprehension caused appears to be misplaced. Objection is taken to the provision that in certain classes of civil or criminal proceedings, a statement of the Comptroller shall be accepted as a prima facie evi dence so far as it relates to, a statement of fact. From this position, a great leap forward is taken by some of the melodramatic critics to the conclusion that a man is presumed guilty unless he proves himself innocent. Consequently clause 14 stands condemned as a fundamental breach of natural justice. Mr Speaker, Sir, no one can say that I am a hard- hearted person or that I am insensitive to the principles of natural justice. But I confess I am quite unmoved by these pleas. I suggest that before these persons take off into the realms of fantasy, they may do well to ask themselves in what kind of proceedings this clause would apply. The answer is given in sub-clause (3) (b) which explicitly excludes proceedings for an offence punishable by imprisonment. And this brings us to section 94 of the Principal Ordinance which defines such offences. These consist principally of the failures to make returns in time and failure to pay tax within the prescribed period. These are relatively trivial offences though the number of offenders is large. It is therefore necessary to make provision for the expeditious disposal of such cases. I am advised by my colleague, the Minister for Labour and Law, that the practice of creating a presumption does not run counter to ac cepted legal principles, and there are many instances in legislation both in our country and elsewhere of this. Mr Speaker, Sir, I wish to conclude my speech with a few general remarks on the course in which I hope this debate will take. The Government is fully aware that the Bill provides for an extension of powers granted to the tax authorities. We are also aware that any extension of power granted to the executives carries with it a certain degree of risk. This is inevitably so in the nature of things. How are we to assess the degree of risk as against the possible advantages in the way of improved efficiency that will be brought about? There are two possible approaches. The first is to take a purely academic and theoretical approach and to raise one's hands in horror at every conceivable and even inconceivable possibility of abuse of power. I suggest that this approach is fruitless and sterile. We must judge this issue on the facts as they are as regards the efficiency and competence of our tax administration. In Singapore we have a small and comparatively young income tax department. This department, like all other Government departments, has gone through the stresses of malayanisation. But I think it will be a fair appraisal of the work they are doing to say that they are a technically competent and responsible group. The Government is working out a scheme whereby officers of the Income Tax Department can have improved terms of conditions of service in order that efficient officers can achieve promotion to the topmost post. This will help further to raise the level of professional competence of officers of the department. Already there are signs of improved efficiency in tax assessments and collections. For instance, in the first four months of the year, the amount of tax collected has been considerably greater than that for the corresponding period of last year. Taking all matters into consideration, I have no hesitation in coming to the conclusion that the powers which will be granted to the tax administration by this Bill will be used with fairness and responsibility. The Opposition, of course, is free to say what they like but their remarks will bear greater weight if they would refrain from taking the purely theoretical approach and instead tackle the problem as a practical problem of tax administra tion. If they take this attitude when discussing specific provisions of the Bill, then I have no doubt that the tax administration, in the execution of their work, will bear their views in mind. Sir, I beg to move. Question proposed. 4.20 p.m.