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3.8 The ERC also recommended that interest income
sourced domestically be exempted from tax. Our
current practice of taxing domestic source interest
income encourages funds to be parked offshore
in interest-bearing deposits and instruments,
thereby benefiting the financial and commercial
banking sectors of other countries.
3.9 I have therefore decided to exempt from tax
interest paid to individuals derived from standard
domestic savings, current and fixed deposits.
This change will help retain domestic funds in
Singapore, and also attract back funds currently
placed offshore.
3.10 The exemption will be implemented in two
phases. Depositors with POSBank already enjoy
tax exemption on the interest from the first $100,000
of their deposits. From YA 2004, in addition to
this tax exemption on POSBank deposits, I will
exempt interest from amounts exceeding the first
$100,000 in each of the standard savings, current
and fixed deposit accounts of individuals. From
YA 2006, the exemption will be extended to the
full amount of these deposits of individuals.
This two step process is necessary because under
an agreement between the Government and DBS Bank,
depositors with POSBank enjoy the exclusive right
to tax exemption on interest from the first $100,000
of their deposits until 31 December 2004.
3.11 This exemption will cost the Government
$43 million. The IRAS will release more details
by April 2003.
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