Singapore Budget Confirms Tax Changes

by Mary Swire, Tax-News.com, Hong Kong

06 May 2002

Singapore Deputy Prime Minister and Finance Minister Lee Hsien Loong delivered his first budget speech on Friday, confirming tax changes most of which had already been widely announced.

In a two-hour long speech, he cut personal income tax from 26% to 22% and corporate income tax from 24.5% to 22%. As anticipated, he raised the Goods and Services Tax (GST) from the current 3% to 5%, but counter-balanced this with a package of assistance measures valued at $1.23 billion.

In compensation for the tax rise, all but the richest families will receive assistance over the next five years, including the issue to each family of 1,200 Economic Restructuring Shares, which they can cash in if they choose for about $1,400, and housing cost subsidies for public housing occupants.

South-east Asia, said Mr Lee, had become less attractive than North-east Asia, with China becoming the biggest and most important new player in the global economy. ''Singapore is still attracting good quality investments and business activities, but companies are feeling the pull of North-east Asia, and some are relocating their activities northwards, particularly to China and Hongkong. We face an uphill task to bring to Singapore the economic activities that will provide Singaporeans with jobs...our challenge is to make Singapore best for business and talent,'' he said.

As a result, the Government had decided to implement a job creation package comprising mainly of tax cuts. Reducing the corporate income tax rate is ''fundamental to strengthening our competitiveness'', he said, while lowering personal income taxes will ''strengthen the incentive for people to strive, create wealth and improve their lives''.

Mr Lee said that he was revising Singapore's official growth forecast for the current year upwards to between 2 and 4 per cent from between 1 and 3 per cent. But the result of the tax changes would be to turn a budget surplus of $900 million for this fiscal year into a small $190 million deficit, which would be covered by a surplus remaining from the previous year.

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