Outline

Why tax?
Conceptual framework to tax
Jurisdiction
Base
Allocation (of the base over time)
Person
AC2301: Principles of Taxation Cross-jurisdictional linkages
2023/24 Semester 2 Tax expenditures
Tax administration
Conceptual framework applied to income taxation

Why tax? Conceptual framework

7 tax concepts
Equity Fundamental issues Jurisdiction
Ability-to-pay principle that need to be
Horizontal equity - persons with same ability to pay addressed in any tax Tax Base
system administration
should pay same amount of tax
Understanding of the
Vertical equity - person with greater ability to pay
concepts important
should be imposed more tax throughout the course Allocation
Transparency and beyond (even as Tax (of the
expenditures base over
Time of payment, manner of payment, quantity to be paid rules change) time)
Convenience As we go through each
Tax levied at time / way most convenient for taxpayer to pay concept, we shall Cross-
discuss how it is jurisdictional Person
Efficiency linkages
Tax collected efficiently keep administrative costs low context

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 Jurisdiction
How a State defines the scope of its taxing rights in relation to:
The base, i.e. the subject matter to be taxed (e.g. income, consumption) and
The person (e.g. individual, company) on whom the tax is imposed
To tax, the State must establish a connection/nexus:
Jurisdiction Between the State and the Base;
Source of the income
and/or
Between the State and the Person
Tax residence of the person

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Source of the income (in simple terms) Tax residence of the person
Income is sourced in the State where the originating cause, activity or event that Each State has its own test to identify who is its tax resident
gives rise to the income takes place States may tax its tax residents and non-tax residents differently
Locate the geographical source, i.e. where is the income sourced? For companies, what are the possible tests for tax residency? What is
What was done to earn the income? the test used in Singapore?
Where was this activity done to earn the income? (Tax residence of an individual is covered in a later session)
(Detailed source rules are covered in a later session)

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 Purely territorial system
Defining the income tax jurisdiction (sourced-based taxation)
source tax residence of

States differ on how narrowly or widely they define their income tax
Residence Resident Non-Resident
jurisdiction Source
Domestic sourced T T

Foreign sourced NT NT
Narrow definition Wide definition
e.g. tax only income e.g. tax residents on all their
sourced in the State income wherever sourced,
(purely territorial system) & tax non-residents on
income sourced within the
State (worldwide system)
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Worldwide system
(Residence-based taxation)
Section 10(1), Income Tax Act:

Residence Resident Non-Resident

Source rates specified hereinafter for each year of assessment upon the income of
Domestic sourced T T any person accruing or derived from Singapore or received in Singapore from
outside Singapore in respect of -
Foreign sourced T NT

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 Generally, Singapore taxes SSI and FSI received in Singapore
Some exceptions:
Income is sourced in Singapore (SSI) FSI received in Singapore by R individuals on/after 1 Jan 2004
exempt from tax, except if received through a partnership in
Singapore
(Section 13(7A) ITA)
Income is sourced outside Singapore (FSI) but received in FSI received in Singapore by NR individuals exempt from tax
(Section 13(7A) ITA)
Singapore
FSI received in Singapore by NR companies not carrying on
business in Singapore exempt as a concession
(IRAS e-Tax Guide 1995/IT/5)
Certain types of FSI received in Singapore by R persons exempt
from tax if certain conditions met (Foreign Sourced Income
Exemption (FSIE) scheme) (Details are covered in a later session)
(Sections 13(8) to 13(11) ITA)
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Illustrations
Jen is an individual who is a Singapore tax resident. She derived
Individuals Companies rental income from a residential property in Thailand and remitted
the amount to her Singapore bank account.
Residence R NR R NR
Source
Jin Juay Lui Pte Ltd, a company incorporated and resident in
SSI Singapore, earned interest of $12,000 from its fixed deposit in a
bank in Hong Kong. $10,000 of this interest was brought into
FSI rec in Sg Singapore for use in its Singapore operations.

FSI not rec in Sg Oblivious Inc., a business incorporated and resident in the United
States, does not carry on any operations in Singapore. It
transferred interest from its fixed deposit account in Indonesia to
its bank account in Singapore.
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 Base
What is to be taxed?
For income tax, base = income

How to define it?

Base
How to measure it?

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Singapore: defining income Capital receipts vs Income receipts

Section 10(1), ITA: Capital receipts:
Receipts from the disposal of assets that form part of the profit-
Income tax is, subject to the provisions of this Act, payable at the rate or making structure or apparatus (fixed capital / tree)
rates specified hereinafter for each year of assessment upon the income of
any person accruing or derived from Singapore or received in Singapore from Income receipts:
outside Singapore in respect of - Receipts from the disposal of circulating capital (fruit)

Income (revenue) is generally taxable in Singapore, but not capital gains. But

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 Singapore: defining income
Capital receipts vs Income receipts - Heads of charge
PMA / Fixed capital / Tree Section 10(1), ITA:
Asset retained and used in the income generation process as Income tax is, subject to the provisions of this Act, payable at the
the means to produce income rate or rates specified hereinafter for each year of assessment upon
the income of any person accruing or derived from Singapore or
received in Singapore from outside Singapore in respect of
Circulating capital / Fruit
Asset bought/made and sold (i.e. (a) gains or profits from any trade, business, profession or vocation,
for whatever period of time such trade, business, profession or
income generation process) to produce income vocation may have been carried on or exercised;
(b) gains or profits from any employment;
Income is therefore the product of capital (c) [ [Deleted by Act 29/65]]
(d) dividends, interest or discounts;
(e) any pension, charge or annuity;
Similar transaction can be regarded as capital receipt in one (f) rents, royalties, premiums and any other profits arising from
instance and income (revenue) receipt in another instance property; and
e.g. receipt from sale of motor vehicle (g) any gains or profits of an income nature not falling within any of

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Heads of charge vs sources of income

Seminar Question 1
Example: Sum received as compensation for the cancellation of business contract
Ah Huat received the following income this year: Seminar Question 2
Salary as accountant with Huat Ah Pte Ltd Sum received for imparting know-how
Income from renting out an apartment he owns in The Sail condominium
Income from renting out an office unit in The Arcade
Royalty from sales of an Accountancy textbook that he authored

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 Allocation (of the base over time)

How to allocate the base over reasonably short periods of time to ensure
timely computation and collection of the tax?

Allocation

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Singapore: allocation issues Singapore income tax basis of assessment

Basis of assessment Section 10(1), ITA:
Income assessed on a current year basis? Or preceding year basis?
EG: SG (2024) = tax on preceding year basis (2023)
Timing of tax imposition rates specified hereinafter for each year of assessment upon the income of
When is SSI brought to tax? How about FSI received in Singapore? any person accruing or derived from Singapore or received in Singapore from
SSI > earned last year | FSI > received last year outside Singapore in respect of -
Carry back/forward of capital allowances, trade losses, approved donations
(details will be covered in later sessions)

Qns: Why companies are asking for the current year basis?

Ans:
Businesses prefer to pay tax with preference to how they are doing.
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(If they are not doing well, they would want to pay lesser tax.)
.
Singapore income tax basis of assessment Singapore income tax basis of assessment
Year of Assessment (YA = tax year)
1 January to 31 December every year The basis of assessment can be:
YA 2024 = 1.1.2024 to 31.12.2024 Preceding calendar year basis (PCY)
Process of income assessment and tax collection occurs every YA e.g. YA 2024 BP: What is the Basic Period (BP) for YA2024?
Ans: 1 Jan 2023 to 31 Dec 2023
Basis Period (BP)
OR - SSI earned
Income assessed to tax in a YA is the income: - FSI received in SG
Accruing in or derived from Singapore (SSI) and
Received in Singapore from outside Singapore (FSI received in Sg) Preceding accounting year basis (PAY)
in the basis period Finals will e.g.YA 2024 BP: 1 April 2022 to 31 March 2023
be testing
In the exams paper = full corporate tax computation on this >> (for 31 March accounting year-end)

test you on YA2024 for Singapore

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Another example: 30 June YE

Ans: 1 July 2022 to 30 June 2023

Singapore income tax

Singapore income tax basis of assessment timing of tax imposition
Companies TBPV SSI when do you earn tax? Ans: Do you have legal entitlement for it? If yes, then you earn it.

PAY for s10(1)(a) income (trade income) When it accrues to or is derived by the person in the BP to the YA
PAY for other income S10(1) (b) - (g) Income accrues for tax purposes when the person has performed all the
Individuals S10(1)(a) obligations/work to earn the income and there is a legal entitlement to
PAY for trade income and non-trade income derived from assets of the receive the income, i.e. when there is a legally enforceable debt owing to the
trade taxpayer
S10(1) (b) - (g)
PCY for other non-trade income (i.e. non-trade income derived from When actual payment is made is not important
Do not confuse this with accounting accrual of income

Singapore Individual Tax Filing = 15-18 April

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Singapore income tax
timing of tax imposition
FSI
When it is received in Singapore (within the meaning of s10(25)) in the BP
to the YA
S10(25) will be discussed in a later session
Timing of accrual of the FSI not important Person

Attempt Seminar Question 3

Do it yourself! (by next week - 1 Feb 2024)

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Singapore income tax - Person Singapore income tax - Person

Person: the taxable entity Who is a person? s2(1) ITA:
includes a company, body of persons and a Hindu joint family
Section 10(1), ITA: In addition to "individual", these parties are involved ^

in Singapore or elsewhere as long as SSI + FFI received in Singapore

rates specified hereinafter for each year of assessment upon the income of
any person accruing or derived from Singapore or received in Singapore from
sale and any fraternity, fellowship or society of persons whether corporate or not
outside Singapore in respect of -
corporate but does not include a company or partnership

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Singapore income tax - Person

An individual
A company
A body of persons (e.g. club, society, association, management corporation)
A Hindu joint family Other concepts
BUT NOT a partnership (not covered in detail today)
Income of partnership (including LLP) allocated to respective partners for
taxation - Cross-jurisdictional linkages
- Tax expenditures
Partnerships (even though it is not legal entity) > still taxable but only on the partners - Tax administration

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Cross-jurisdictional linkages Tax expenditures

Tax preferences / tax incentives:
Cross-border linkages What economic, social or other objectives are pursued through
How does the domestic tax laws of a State link up with the tax laws of favourable tax treatment for certain items of the tax base or for certain
other States that impose the same tax or a similar tax? groups of taxpayers?

SG (using tax system in giving tax money) --> Tax incentive Regime

Economics: SG is spending to invest to create jobs

Socials: Giving more donations

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Tax administration
What detailed administrative provisions are required to:
Structure the tax imposition and collection process; and
Define the rights and obligations of the taxpayer and the tax authority
Detailed rules on:
Filing tax returns
Providing of information
Tax assessments
Payments and refunds
Penalties and enforcement
Objections and appeals

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