Reference no: EM131644114

Problem - The "Start-up Tax Exemption" was announced in Budget 2004 and the following is an extract of the Budget Speech in that year:

"4.20 New companies represent our hopes for a more entrepreneurial economy. Government will give these start-ups every opportunity to thrive and succeed. I have therefore decided to fully exempt from tax the first $100,000 of normal chargeable income (excluding Singapore dividends). This exemption will apply to new companies for each of their first three years of assessment that fall within the period YA 2005 to YA 2009. This, together with the current partial tax exemption feature of our corporate tax regime, underscores our commitment to keep statutory costs on entrepreneurs as low as possible."

A medical practitioner has been running his own practice for many years and recently, he was told by one of his friends that he can split his practice into multiple parts of business and each part can be housed in a separate Singapore company. This scheme will allow each of the Singapore companies to enjoy the Start-up Tax Exemption. 

The medical practitioner is not comfortable with his friend's suggestion and has sought your input. 

Demonstrate your understanding of the concept of "tax avoidance" and help this medical practitioner to consider the merit of his friend's suggestion from a tax planning perspective.