Tax Write-up: Private-Hire Drivers May Claim Tax Deductions Under Proposed Changes to Income Tax Act

By Kay Yee and Shilin (Research & Training Department)

This article mentions the upcoming proposed amendments to the Income Tax Act (ITA) that would be implemented once they are passed. The proposed amendments pertain to the private-hire transport industry. With the growing influence of technology, private-hire car companies that provide bookings through mobile apps have been gaining popularity within the country. With the introduction of the amendments, private-hire car drivers are able to claim tax deductions for their expenses for petrol, vehicle rental fees, car washes and ERP charges, similar to taxi drivers. As provided in s15(1)(k) of the ITA, expenses relating to E/S-plate private cars are not deductible in the tax computation. As private-hire cars fall under this category, they have previously been unable to earn tax deductibility for such expenses incurred. On the other hand, taxi drivers can claim tax deductibility. This might be unjust since the private-hire drivers and taxi drivers are providing the same service of bringing the passengers to their destinations. As such, the amendments show that the Income Tax Act is constantly making changes due to technological advances.

Taking a look at how private-hire drivers will be affected, this increase in tax-deductible expenses would help in offsetting the taxable income for them which decreases the amount of tax they have to pay. This can help to lighten the burden felt by private-hire drivers for having to pay for not only the driving expenses but also their income tax should they meet the income requirements. This can provide an opportunity for them to place the extra money into other places. With similar deductible expenses to taxi drivers, private-hire drivers will feel incentivised to stay in the private-hire industry instead of converting to the taxi industry in order to enjoy the deductible expenses.

However, taxi drivers will feel the heat of the competition. Previously, the lack of tax deductibility for private-hire drivers had given them the incentive in being employed as taxi drivers. If private-hire drivers are granted the same concession, taxi drivers could lose that incentive and they are set on par with each other. Thus, for taxi drivers that have been sitting on the fence of being private-hire drivers; this may compel them to switch over to companies like Grab given the fact that they are able to enjoy the same tax deductibility. Companies like ComfortDelgro may experience a loss of taxi drivers as a result.

Last but not least, this new proposal is a double-edged sword. Firstly, the negative impact will be a decrease in tax revenue collected by the government from this pool of taxpayers. Apart from that, the positive impact will include the fact that this benefit may attract more people to join the private-hire car industry as drivers since they are not required to pay as much tax as before to IRAS. Hence, this might eventually lead to a boom in private-hire car services. Such a boom could attract more investors to invest in this industry and lead to the introduction of more players into the pool, thus encouraging healthy competition within the transport industry.

In conclusion, the proposed amendments are beneficial for Singapore in general. As mentioned above, they would incentivise the biggest beneficiaries, i.e. private-hire drivers, to start their career or continue in the industry now that steps are taken to make sure that the private-hire drivers are on par with the taxi-drivers. In turn, it would help in boosting the private transport industry that could lead to more advancements and a boom in Singapore’s economy. The heart of it all is that Singapore’s government is constantly making efforts to improve and ensure that the Income Tax Act is relevant to today’s modern economy.

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