Second Reading of Income Tax (Amendment) Bill by Jean See, NTUC Director of Freelancers and Self-Employed Unit on 3 October 2023

Embracing Pro-Worker Perspectives for Income-impacting policies and Pro-Company Approaches for Innovation-supportive policies

Mr Deputy Speaker, I declare my interest as a representative of the Labour Movement.

The Income Tax (Amendment) Bill evokes a range of emotions in workers and firms.
Workers and firms appreciate that the Bill provides Certainty on the “What”.
Nonetheless, they seek Clarity on the “How”.

Allow me to make three main points.

First, ensuring data is simple to interpret yet accurate and complete.

A new section - 14ZH of the principal Act - covers workers performing delivery services. This includes delivery workers using online matching platforms.

14ZH offers Certainty that self-employed delivery workers will now be allowed automatic tax deduction. This is based on a prescribed percentage of annual gross income from freelance delivery work and is subject to an income cap. At present, self-employed commission agents, taxi drivers, and private hire car drivers benefit from similar “fixed expense deduction ratio” or FEDR arrangements.

Mr Joseph Goh, a private hire car driver of close to eight years, appreciate that the FEDR frees him from needing to derive the expense figure for his yearly tax filing. But he worries that a predetermined fixed expense deduction ratio could become outdated and over-simplified. Other private hire car drivers and taxi drivers share his worry. Self-employed delivery workers, now share his worry too.

They ask:
a) Does the data behind the FEDR reflect the reality of climbing operating costs, such as higher fuel prices and pricier vehicle leases?

b) Has the data considered operational complexities such as how different elements impact platform work earnings or the multi-fold impact of GST on drivers and riders’ income? For instance, Mr Goh has little choice but to absorb the GST that is imposed on his vehicle rental, commissions payable, servicing fees, fuel costs, and so on.

These platform workers therefore seek assurance from the government that the FEDRs are determined using accurate and complete data, and are reviewed periodically.

This leads to my second point – adopting pro-worker perspectives to data collection.

Another new section – 68A of the principal Act – grants the government power to require any person (X) who belongs to a prescribed class of persons to comply with a notice that may require X to collect and retain identification and income and expense information of any person (Y), who entered into an agreement or arrangement of a specific description with X for carrying on any trade, business, vocation or profession for which Y derives chargeable income. Examples of X may include commission-paying agencies and taxi or platform operators.

68A makes Certain that the government would have visibility of platform workers’ income and expense information if the government so decides. This visibility makes platform workers wonder how such information would be used and how its use would be safeguarded.

They also wonder if the government’s heightened awareness of platform workers’ income challenges would translate to policymakers becoming more proactive in engaging the NTUC and its representative NTUC-affiliated associations on more support for platform workers. After all, “with great power comes great responsibility” goes the saying familiar to most Spider-man fans.

Platform workers thus seek to be assured that the FEDRs would be accurate, complete, and indicative of the operating cost challenges of taxi drivers, private hire car drivers, and delivery workers, for their respective vocations, and as platform workers. Now this concern has been raised by Labour Movement Members of Parliament at various Parliament sitting since Year 2020 if I recall. In this regard, could the Minister share how the government intends to ensure continual relevance of the fixed expense deduction ratios?

Third, devising pro-company approaches to encourage firm-based innovation.

The Bill also makes Certain economic support for Singapore businesses desiring to innovate. At core is the Enterprise Innovation Scheme or EIS in short.

By tapping on EIS to innovate, small firms can aspire to outcompete larger firms. Firms with more modest ambitions, too, can tap on the EIS to embark on process innovation, a journey that can also inspire in their workforce the courage to experiment.

Whether firms seek to innovate for incremental gain or transformative technology, smaller firms generally find it challenging to set aside capital for innovation. Innovation involves uncertainties and trade-offs. Scarred by the pandemic, small firms tend to prioritise profitability and accumulation of reserves over risk and vague promises of success.

Firm X is a typical example. Wanting to enhance its existing product to cater to a new market, a small firm, Firm X, decided to partner a local polytechnic on an innovation project. Firm X was quick to apply to Enterprise Singapore for project funding under the EIS. It was then that Firm X realised that it could be out of a substantial amount of cash for up to a year if it proceeded. Why was this so?

This was because Firm X had to pay the polytechnic upfront before it could commence the project. However, it could only submit the claims for reimbursement after the completion of project. Firm X was also informed that it might only receive the reimbursements 3-6 months after claims submission.

To protect its cash position, Firm X decided to reduce its cash outlay and in turn the project scope. While this slowed Firm X’s progress, its founders felt that conserving cash would put Firm X on surer footing to navigate the economic uncertainty. Many small firm owners share the same sentiments.

This Bill seeks to raise tax deductions to 400 per cent of qualifying expenditure in five areas of innovation activities. It also allows businesses the option of converting 20 per cent of their total qualifying expenditure per Year of Assessment into a cash payout of up to S$20,000. While these are praise-worthy initiatives, cash-tight firms like Firm X might still hesitate from setting aside adequate budget for innovation-related spending. But their hesitation might waver if subsidies were given upfront.

A pro-company approach could thus involve mirroring the existing arrangement for course fee subsidy. For courses approved by SkillsFuture Singapore, firms need only bear the unsubsidised portion of course fees. The training institution offsets the balance from a SSG block budget. Similarly, the EIS could set aside a block budget to provide upfront subsidy for innovation projects of EIS-supported firms. Approved institutions partnering these EIS-supported firms could offset the subsidy amounts from this block budget. Therefore, under this arrangement, EIS-supported firms would only have to pay a fraction of the project cost.

A pro-company approach could lower firms’ barriers to innovation. These firms’ workforce would benefit from exposure to innovation activities. Innovation-led growth could open doors for workers to build skills in new areas and embark on prospects from new opportunities. To lessen the cash burden on small firms, could the government explore offering firms innovation-supportive arrangements that are less taxing on cash-flow?

In the same vein of enabling small businesses, could the government consider allocating greater training support for freelancers and self-employed persons who want to upskill to supply to innovating firms? For instance, firms might want to enter the metaverse. Local creative freelancers with the right skillsets could create metaverse relevant digital assets for these firms. Would the government consider working with umbrella organisations such as NTUC’s Visual, Audio, Creative Content Professionals Association to provide financial support for freelancers when they train for new opportunities? Like small firms, such support would go a long way to ease their financial burdens on freelancers when they trade off present gigs to invest in their skills.

Sir, I would like to conclude by reiterating three main points of my speech.

First, platform workers need assurance that the data used to determine the fixed expense deduction ratio is simple to interpret yet accurate and complete.

Second, platform workers would want to know how the information would be used and safeguarded if platforms are to release it to the government, and whether the government, being better informed, would engage representative organisations like the NTUC to introduce more support for platform workers.

Third, small firms can be encouraged to innovate if innovation projects were co-paid upfront. The government could also support freelancers who want to train for future-oriented work. These freelancers could cater to the new needs of innovating firms.

Notwithstanding these three main points which I hope the Minister could consider, I thank the Minister for this comprehensive and progressive Bill.

Mr Deputy Speaker, I support the Bill.