To reduce the tax burden for individuals, as well as reward individual effort and enterprise, I have decided to cut income tax rates of all income bands with effect from YA2002. The tax rates of all bands will be reduced by between two to five percentage points. The top marginal tax rate will be reduced from the current 28 percent to 26 percent. All individual taxpayers will pay less tax, with the majority paying at least 25 percent less tax.

In percentage terms, lower-income and middle-income taxpayers will benefit most. An individual earning $35,000 a year will enjoy tax savings of about 30 percent. Taxpayers who earn $100,000 a year will enjoy savings of about 20 percent.

In 1994, we introduced GST and at the same time gave taxpayers a $700 GST-related income tax rebate to soften the initial impact of GST. The rebate was lowered by $50 each year until it reached $500 in YA 1998. In order to streamline the individual tax structure, I have decided to reduce the rebate over time, and incorporate its benefits into the individual tax structure. To this end, the first $7,500 of an individual¸s chargeable income will not be taxed, and the $500 GST-related income tax rebate will be reduced to $250 correspondingly, as a first step.

The net effect of all these changes to the individual income tax regime is to make all taxpayers better off.

Cutting personal tax rates will lower the tax burden of workers and encourage individual effort. Competitive personal tax rates will also help Singapore retain its local talent and attract new foreign talent.

The above measures will result in tax savings of $300 million a year for taxpayers. The new income tax rates are attached in Annex 2.