Restructuring the Corporate Income Tax System
5.2 First, direct taxes — we will make a significant move on corporate income tax in this Budget. The landscape is now more competitive than it was, even five years ago. Globally, corporate tax rates have come down to an average of 27% compared to 31% five years ago. Hong Kong’s rate is currently at 17.5%, and could go down further. Ireland’s is 12.5%. The emerging Eastern European economies have become serious competitors for global investment — Czech Republic is at 24%. Poland and Slovak Republic are at 19%. Hungary is at 16%. Latvia and Lithuania are at 15%.
5.3 As a broad based measure to help all companies and to keep Singapore attractive as a business location, I have decided to reduce the corporate tax rate by two percentage points, to 18%, with effect from YA2008. This will cost the Government $800 million a year. This corporate tax cut will bring Singapore more investments and more good jobs over time.
5.4 I will also do more to keep our tax regime relevant to new business structures and financial practices. Recognising that business borrowings are now taking various innovative and non-traditional forms, I will now allow all borrowing costs that are essentially similar to interest to qualify as tax-deductible expenses, with effect from YA2008. Such tax deductible costs will include certain guarantee fees and bond discounts. This will cost the Government $110 million a year. IRAS will release further details on this change.
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