Let me turn next to the fiscal position
and the proposed tax changes.
GDP growth in 1996 is forecast at 7-8
per cent, in line with our medium term growth potential.
Revenue collection is expected to be $26.0 billion.
With operating and development expenditures budgeted
at $18.9 billion, a surplus of $7.1 billion is anticipated.
A comprehensive GST of 3 per cent has
been implemented for 2 years since April 1994. GST revenue
collection in FY95 is projected to be $1.6 billion.
This is less than the value of the GST offset package,
which is estimated at $1.8 billion. Hence, the introduction
of GST continues to be revenue negative, as the Government
had promised. The implementation of GST has generally
gone smoothly but we will continue to fine-tune procedures
to facilitate the conduct of businesses.
The GST has broadened our tax base
and put us in a strong position to take the reform of
our tax system a stage further. The government's basic
aim is to simplify the tax system and tax factors of
production as lightly as possible. A simplified tax
system facilitates compliance and lowers both administrative
and business costs. The strong revenues from levies
imposed for specific purposes, such as COE and foreign
workers levy, help to keep our direct and indirect taxes
as low as possible. Lighter taxes will strengthen incentives
for the population to work, save and grow the economy.
The level of taxation needed depends on the government's
spending requirements. So long as the Government continues
to be prudent with its expenditure, there will be no
need to tax the economy heavily.
As the growth outlook in 1996 remains
buoyant, there is no pressing need to stimulate the
economy with drastic tax cuts. However, margins in some
business sectors have been squeezed by rising manpower
costs and the strong Singapore dollar. There is therefore
a case for continuing our policy of gradually reducing
government levies and taxes in order to reduce business
costs and improve profitability. We will also fine-tune
tax incentives to promote high value-added activities
and encourage investments in equipment for pollution
control and the conservation of water and energy. Also,
while tax incentives will continue to be used, other
incentives, such as equity participation, grants and
loans, will play a greater role to supplement tax incentives
in attracting desirable activities.
Human capital will be an increasingly
important source of comparative advantage for the economy.
To compete for and retain talent, the Government is
committed to lowering the tax burden on individuals
whenever its fiscal position allows. We will also simplify
and restructure the personal income tax system to encourage
hard work and reward achievers, particularly for the
middle income groups.
As 1995 was another successful year,
the Government will continue to implement special schemes
to return part of government's surpluses to Singaporeans
who fall outside the income tax net. This will be done
in ways which enhance the assets of our citizens and
do not create dependency expectations.
Let me now deal first with the tax
changes for companies.