Finance Minister Tharman Shanmugaratnam had announced in his Budget statement plans to make it easier for companies to restructure and rationalise.

The new framework will ease new combined business such that it feels as it has 'stepped into the shoes' of the merging companies. The end result is that there should not be additional income tax to be paid, simply because of the transfer of businesses.

Under the current treatment, it is possible for mergers to pay more tax.

Another advantage under the proposed framework is that if there are losses made by one of the companies, these can be carried forward and used to offset profits of the group in future. The risk, however, is that profitable companies may actively seek to buy up loss-making companies just for this purpose.

Tax practioners welcomed the move on Friday.

Ernst & Young partner of international and corporate tax servies Soh Pui Ming said: 'This move comes at the right time. There is a lot of interest in the M&A arena.'

Ms Sim said that there are companies with a strong balance sheet which are looking to acquire struggling businesses if the price is right. There are also companies who may be looking to restructure and merge as part of moves to control costs.

The new tax moves will benefit companies with such plans.

The deadline for submission of views to the Iras is March 20.