1.32 The ERC Sub-Committee on Taxation, Wages, CPF and Land ("the ERC Sub-Committee"), chaired by Senior Minister of State Tharman Shanmugaratnam, published a report on 11 April on "Restructuring the Tax System for Growth and Job Creation". It recommended that the Government make a significant immediate reduction in corporate and personal income tax rates, and that it lower both to 20% within three years. It also recommended that the Government raise the GST rate from 3% to 5% in 2003, and in parallel provide a comprehensive offset package to help cushion the impact of the GST increase on Singaporeans, especially lower-income households.

1.33 The Government accepts these key recommendations of the ERC Sub-Committee. Our highest priority is to create good jobs for Singaporeans. To do this, we must continue to attract companies and talent to locate in Singapore and grow our economy. But companies and talent are highly sensitive to the taxes they have to pay, especially direct taxes on their income. We have to bring down our corporate and personal income tax rates to make ourselves more competitive. However, this will cause a large shortfall in Government revenue, which has to be made up one way or other. The most effective way to do so is by raising the GST rate.

1.34 The Government will lower the corporate and top personal income tax rates to 20% by the FY 2004 Budget, as recommended by the ERC Sub-Committee. This is barring a major change in the economic and political climate, which unfortunately cannot be completely ruled out given the uncertain regional and global situation.

1.35 The ERC Sub-Committee also made many other recommendations on tax. Several of these have been included in this Budget. Others are still being studied by MOF. All those found to be feasible will be included in the next Budget.