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Jobs, or the lack of them. This was
the key issue addressed by the ERC Sub-Committee on
Policies related to Taxation, the CPF system, Wages
and Land (TCWL), which released its report on taxation
on Thursday. In the face of the worst unemployment since
1986 and with the economy emerging from the sharpest
downturn since independence, the ERC has unveiled the
first component of its strategy for boosting Singapore’s
economic fortunes and creating more jobs for Singaporeans.
By proposing a substantialignificant
and immediate cuts in income taxes, and further reductions
in both corporate and personal income tax rates to 20%
within three years, the Sub-Committee aims to attract
more businesses to locate in Singapore and generate
higher growth, more jobs and better incomes for all
Singaporeans. The Sub-Committee recommends significant
immediate reductions in corporate and personal income
taxes, for income earned in 2002. It also recommends
a target of 20 percent to be achieved within 3 years
for both the corporate tax rate (from 24.5 percent)
and the top marginal personal income tax rate (from
26 percent), with corresponding cuts across income bands.
The ERC Sub-Committee has proposed
that the loss in government revenues be partially made
up by a two-percent point increase in the GST rate,
from 3% to 5%, in 2003. Even with this increase, the
GST rate would still be one of the lowest worldwide.
GST Offset Package
The Sub-Committee proposed that the
Ggovernment provide Singaporeans with an offset package
to help them adjust to the GST increase, as in 1994
when the GST was introduced.
Mr Tharman Shanmugaratnam, Senior Minister
of State (Trade and Industry & Education), who chaired
chairs the Sub-Committee, said, "The GST increase
is essential if we are to cut income taxes to, and regain
generate economic dynamism and jobs for Singaporeall.
and generate jobs for all. Helping Singaporeans adjust
to the GST increase through this transition must be
a major priority of the government."
GST Offset Package
DPM Lee Hsien Loong, Chairman of the
ERC, said in his response to the recommendations by
the Sub-Committee, "The bold recommendations on
tax policies will lay the groundwork for the Singapore
economy to grow, prosper and create jobs in a more uncertain
and competitive environment.We have to attract investments,
raise productivity, and so create new employment opportunities
for Singaporeans. Lowering direct taxes, and making
up the revenue by raising indirect taxes, is an important
strategy for achieving those objectives." DPM Lee
also said, "If the government decides to restructure
taxes and increase GST, it will certainly implement
a comprehensive offset package to help Singaporeans
adjust."
In addition to the offset package,
the Sub-Committee recommended that the government pay
special attention to the impact of the GST increase
on education, health care and public transport costs.
It also proposed that a committee to combat profiteering
and undue price increases be set up, similar to what
was done in 1994.
Corporate Tax Changes
The Sub-Committee proposed a comprehensive
set of corporate tax changes to help position Singapore
as a business hub and support the growth of local enterprises.
Apart from the cut in the corporate tax rate from 24.5%
to 20%, the Sub-Committee recommended the introduction
of group relief, to allow corporate groups to offset
the losses of one company against the taxable profits
of another company within the same group. It also proposed
replacing the full-imputation corporate tax system with
a more efficient one-tier system; selective enhancements
and simplification of tax incentive schemes; and more
liberal treatment of foreign business income remitted
to Singapore.
The Sub-Committee also recommended
that intellectual property be treated like fixed[tangible,physical?]physical
assets for tax purposes, in recognition of the growing
importance of knowledge-based activities in the Singapore
economy.
Personal Tax Changes
The Sub-Committee proposed bold measures
to lighten the personal tax burden so as to encourage
hard work and enterprise, and boost Singapore’s role
as a "talent capital". Besides cutting the
personal income tax rate from 26% to 20%s, the Sub-Committee
recommends recommended that the government consider
removing tax on all interest income in Singapore, and
personal income remitted back to Singapore from abroad.
It also proposed improvements to the taxation of stock
options to strengthen Singapore’s entrepreneurial culture
and help Singapore compete for talent. In addition,
the Sub-Committee recommended not taxing earnings attributable
to time spent outside Singapore for employees who are
"temporary tax residents". These measures
should make Singapore a more attractive location for
regional and international activities.
Smaller Budget Surplus
The proposed tax changes are expected
to reduce the government’s projected annual budget surpluses.
But the Sub-Committee emphasised the need to avoid deficits
in the government budget. It noted that the GST has
proved a resilient and important source of revenue.
The proposed GST increase will make up for about half
of the revenue loss from income tax cuts in the medium
term. As
Mr Shanmugaratnam said that , "The
Government government has to spend on healthcare, education
and other social expenditures programmes? to meet the
needs of the people, without running into deficit."
Mr Shanmugaratnam said that the The
tax changes are meant to achieve this. They are a critical
part of Singapore’s strategy to attract investments,
strengthen growthgrow the economic pie, and provide
moregood jobs and better incomes for all Singaporeans."
The full
report is available at the ERC web site www.mti.gov.sg
ERC Sub-Committee on Policies Related
to Taxation, the CPF system, Wages and Land
11 April 2002
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