Tax Update-1998 Budget Issues


  In an effort to encourage private hospitals to provide special wards for patients in the lower income group, it has been proposed in the Budget Speech that an investment allowance of 60% be given on qualifying capital expenditure incurred for this purpose.

The proposed incentive is to be effective from year of assessment 1998.
   
  The taxation of life insurance business was changed in the year of assessment 1995 such that the income of the life fund and that of the shareholders' fund of a life insurance business were treated as separate sources of income.

To encourage the growth of the life re-insurance business especially the underwriting of foreign inward life re-insurance business, it is proposed that life re-insurance business and inward life re-insurance business be regarded as a separate source from life business and that they be treated as a general business of the insurance company.

Consequential amendments have also been provided so that the adjusted income of a life re-insurance business and inward life re-insurance business of a resident or a non-resident life insurer are computed in a manner similar to that of a general insurance business.

It is also proposed that the chargeable income of an inward life re-insurance business be taxed at a rate of 5% to be in line with that of an inward general re-insurance business.

The said amendments are to be effective from year of assessment 1998.
   
  a. Employers' Contributions to Approved Schemes

At present, contributions by an employer to an approved scheme qualify for tax deduction subject to a maximum of 17% of the employee's remuneration (as determined by the rules of the scheme) so long as the whole of that remuneration is tax deductible. To encourage greater employers' contributions as a form of savings, it is proposed in the Finance Bill that the maximum deductible contribution be increased to 19%.

This amendment is to be effective from year of assessment 1998.

[page 7 of 27]

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