4.17 The reduction in personal income tax rates will benefit all taxpayers. It will also help attract and retain talent. The Government has also accepted the ERC Sub-Committee's proposals to introduce a new category of taxpayer called Not Ordinarily Resident Taxpayer and refine our current tax treatment of stock options. I have also taken the opportunity to streamline, and in some cases increase, personal income tax reliefs, and to simplify the tax structure by reducing the number of income bands. Let me deal first with the new tax structure.

Personal Income Tax Structure

4.18 With the significant reduction in the top personal income tax rate, we no longer need as many tax bands as before. I have therefore decided to simplify the structure by consolidating the existing 10 bands to 7.

4.19 Last year, $250 of the $500 GST-related income tax rebate was incorporated into the individual tax structure by exempting the first $7,500 of an individual's chargeable income from tax. This year we will incorporate the remaining $250 GST-related income tax rebate, as well as the $3,000 personal relief, which is enjoyed by all taxpayers, into the personal income tax structure. With these changes, the first $20,000 of an individual's chargeable income will not be taxed. The new bands and rates are attached at Annex 6.

4.20 These income tax changes will not affect the rebates that were given out as part of last year's off-Budget measures.

Not Ordinarily Resident Taxpayer Scheme

4.21 The ERC Sub-Committee has recommended favourable tax treatment for persons who have not lived in Singapore for the preceding 3 years, but are currently based in Singapore. This is to attract talent to relocate to Singapore. The UK and Ireland already have such schemes.

4.22 The Government has accepted the ERC's recommendation. We will create a new class of taxpayers called "Not Ordinarily Resident" (NOR) taxpayers.

4.23 An NOR taxpayer will be exempt from tax on income earned before he came here. A non-citizen NOR taxpayer will also be exempt from tax on his employer's contribution to his overseas pension fund, to compensate for the fact that non-citizens do not enjoy CPF tax relief.

4.24 In addition, an NOR taxpayer who spends at least 90 days a year outside Singapore on business will pay tax only on his total Singapore employment income based on his number of days here. This is subject to a floor tax rate of 10% on his total employment income. It will help us to attract the senior management of companies to use Singapore as their base for regional activities.

4.25 The NOR scheme will take effect from YA 2003. The details of the scheme are at Annex 7.

Stock Option Schemes

4.26 Stock options are effective in encouraging entrepreneurship. This is why more companies are using stock options to recruit, motivate and retain talent. Although we already grant favourable tax treatment for some types of stock options, the ERC Sub-Committee has proposed some improvements.

4.27 I have studied the proposals, and decided to make the following changes:

4.28 The details are at Annex 8.

Other Changes to the Personal Income Tax

National Service Reliefs

4.29 This year marks the 35th year of National Service. Our NSmen spend precious time away from their work and families each year to build up their operational readiness, and keep Singapore safe and secure. This is a heavy commitment especially during an economic downturn. To further recognise the contributions of NSmen, I have decided to increase the current NS reliefs by 50%. The amounts will increase from $2,000 to $3,000 for Active NSmen, from $1,000 to $1,500 for Inactive NSmen, and from $500 to $750 for the wives and parents of NSmen. This will take effect from YA 2003.

4.30 This will cost the Government $17 million per year.

Procreation Tax Rebate

4.31 The procreation tax rebate was granted to encourage parents to bring up their children in an intact family. We therefore set the rules to disallow parents who divorce from continuing to claim the rebates. However, we have received appeals from divorcees with children, whose rebates were discontinued after they divorced. They pointed out that they too needed support, perhaps more so than other parents.

4.32 The Government continues to uphold the value of maintaining strong families. However, we also recognise that withdrawing the rebate from divorcees can add to their already difficult burden. I have decided to allow divorcees to continue to claim their procreation tax rebates with effect from YA 2003. Divorcees whose procreation tax rebates have already been terminated may apply to IRAS for reinstatement of their rebates if their claim periods have not expired.

Handicapped Parent Relief

4.33 As our life expectancy lengthens, more and more Singaporeans will find themselves looking after aged and handicapped parents. The Government strongly encourages families to look after aged parents in their own homes, and only use old-age homes as a last resort. But this can be a considerable financial burden on the family, especially for families with few children to share the burden.

4.34 I am therefore introducing a handicapped parent relief of $3,000 on top of the normal parent relief with effect from YA 2003. Including the normal parent relief, the total amount of relief granted to taxpayers taking care of their parents will be: $8,000 if the taxpayer is living with the parent; and $6,500 if the taxpayer is not living with the parent.

4.35 This will cost the Government $2 million per year.

Double Child Relief for Children Studying Overseas

4.36 Parents may currently claim double child relief ($4,000) in respect of a child who studies overseas. The original purpose was to subsidise the overseas education of expatriates' children. It was later retained because of the limited opportunities to pursue tertiary education in Singapore. However, the number of places in local tertiary institutions has grown greatly over the years. It is no longer necessary or justified to subsidise overseas tertiary education. I have therefore decided to withdraw the double child relief with effect from YA 2003.

Allowance for Members of Parliament

4.37 Members of Parliament (MPs) currently enjoy a tax remission on the MP allowance. Now that the MP's allowance is regularly revised in step with a private sector salary benchmark, this remission is no longer relevant. Instead, the MP allowance should be regarded as taxable income, just like other employment income. I have therefore decided to withdraw the tax remission for the MP allowance with effect from YA 2003.