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It's time to challenge relevance of each section of ITA and rationalise appropriate sectionsFOR some countries, the act of filing taxes has become a complicated monstrosity.迷你倉最平 A 2012 annual report issued by the Taxpayer Advocate Service, an independent agency within the US Internal Revenue Service, estimates that simplifying the US tax code will save taxpayers 6.1 billion hours and US$168 billion spent on returns. On the surface, Singapore's tax system appears enviously less complex. But dig deeper, and you'll find there's still room for simplification.First introduced in 1947, Singapore tax legislation is a legacy from British colonial rule, modelled after the Model Colonial Territories Income Tax Ordinance 1922. Throughout the years, as Singapore's tax policy keeps pace with global developments, tax legislation has been continually refined or introduced, leading to a burgeoning tax code.Today, Singapore's key tax legislation consists of the Income Tax Act (ITA), the Economic Expansion Incentives Act (EEIA), the Goods and Services Tax (GST) Act and the Stamp Duties Act. The Singapore ITA has 21 parts, 18 main numbered sections, eight schedules and an increasing number of regulations. The other three Acts have similar structures.The 21 parts of the ITA each contains one or more sections representing legislation relating to a broad category such as Part IV - Exemption from Income Tax (sections 13 to 13Z). New sections are then inserted where most relevant. For example, the recent introduction of tax exemption on gains or profits arising from disposal of ordinary shares was included within Part IV and numbered section 13Z.However, other parts of the ITA are less organised. For example, Part VII ascertainment of certain income appears to be a cocktail of various sections with little or no connection. Part VII includes section 34D, which gives the Inland Revenue Authority of Singapore (IRAS) the power to make adjustments and tax the profit of a Singapore taxpayer if the related party transaction it enters into is not priced at arm's length, as well as rules on profits of insurers (section 26), the anti-tax avoidance section (section 33), profits from non-resident air transport and cable undertakings (section 28), and Islamic financing arrangements (section 34B), just to name a few.This has made the numbering system of certain sections more complex. For example, section 13 has reached number "13Z". But section 43 takes the cake with section 43ZF. We certainly do not look forward to the day when this grows to section 43ZZZ!Singapore's tax incentives are crucial in drawing investments. But these are not always specifically legislated within the tax code. Those that are can be found in separate Acts. For example, the pioneer manufacturing and pioneer service awards are covered in the EEIA, while the tax exemption for the Maritime Sector Incentive - Approved International Shipping Enterprise (MSI-AIS) award is legislated in the ITA.These kinks in the tax code need to be sorted out: disorganised sections should be realigned, redundant sections removed and disparate legislation reconciled.The tax payable figure is what matters most to the Singapore taxpayer. This is derived generally from multiplying the taxable income by the prevailing tax rate. Concepts such as assessable income and statutory income have been made more complex through the insertions of sections within the ITA. Streamlining these would bring greater clarity.For one thing, specific sections such as those on tax losses, donations and reliefs could be grouped together. Similarly, sections relating to regulated industries such as the financial services industry, shipping and air transport industry could be clustered in separate parts of the ITA.Secondl迷你倉, sub-sections of the Act could also be renumbered and if this is not possible, the contents page of the ITA could perhaps be increased to better reflect the sub-sections.Thirdly, redundant sections within the EEIA should be removed. Going a step further, why not even list all awards and grants in a separate Part of the ITA in a cohesive fashion with clearly stated qualifying conditions? This would greatly simplify the tax code and remove the need for the EEIA.Reducing the ITA to a simple format with easily located sections would mean less time wasted on digging for information buried within a complex numbering system. The time can be better spent on analysing the tax code for appropriate use.Also, including the tax guidance and administrative concessions that are released regularly by the IRAS in the form of online statements or e-tax guides into the sections of the ITA can reduce the risk of taxpayers and tax practitioners overlooking such guidance. In an ideal world, looking up the tax code should suffice without the need for further clarification from the e-tax guide or other forms of guidance. As such, to maintain consistency, clarifications made within the e-tax guides should, where possible, be updated within legislation. Notwithstanding the above, new challenges could arise from the guidelines in these e-tax guides. Take the definition of tax residency for example.In Singapore, this refers to the place where the control and management of a business is exercised. While the IRAS has issued guidelines on where a certificate of residence (thereby certifying tax residency status) would be issued to a foreign-owned Singapore investment company receiving only passive income, these guidelines in themselves challenge the conventional definition of tax residency.There are also other areas of the tax code that can be streamlined to reduce complexity and facilitate the preparation of tax returns.For one thing, capital allowance claims on hire-purchase (HP) agreements paid through instalments need to be carefully tracked as finance charges are not applicable for capital allowance claims. This administrative burden is further compounded when Productivity and Innovation Credit (PIC) claims apply on the assets. If the agreement is terminated early, calculations need to be made to determine any clawback of capital allowance and PIC claims previously made.Double tax deductions are given for qualifying donations made to institutions of public character in Singapore. The definition of a qualifying donation means some companies may not qualify for the double deduction. For example, a taxpayer who donates $500 in cash to an institution of public character (IPC) could enjoy a double tax deduction but another who spends $500 to buy food hampers for the same IPC might be denied the deduction claim. Also, any unutilised donations can only be carried forward for five years. Providing a tax deduction for more forms of donations to IPCs and allowing claims to be carried forward for an unlimited period, subject to conditions, would further encourage philanthropy.Two centuries ago, one of the fathers of modern economics, Adam Smith, set out the four principles of good taxation in his book The Wealth of Nations: taxes should be reasonable, certain, convenient and simple. These principles remain relevant today.Amid a backdrop of increasing tax controversy, it is a good time to tackle Singapore's tax code by challenging the relevance of each section and rationalising the appropriate sections now. Sharpening each blurry line means one less opportunity for a loophole to be exploited.The writers are respectively, partner & head of tax and partner, international and transaction tax, at EY in Singapore.The views expressed are their ownmini storage