Press Releases

The 2001 Budget announced by Finance Minister Richard Hu on Friday will position Singapore for a new era of growth where knowledge and ideas are key. Designed to encourage innovation, enterprise, knowledge creation and education, the Budget will increase Singapore's global competitiveness.

In his speech, Minister Hu stressed the need to stay together as a nation and help those who were not doing as well to succeed. Unveiling measures to help businesses upgrade or move to industries with better prospects, and create conditions for individuals to improve their skills and employability, the Minister called on the government and people of Singapore to 'come together and make the necessary changes to our economy', so that all Singaporeans could 'stay united and succeed together'.

Boost for Local Businesses

Small businesses were a key focus of this year's Budget. Minister Hu outlined a multi-pronged strategy to help Singapore's local businesses adapt to the new growth era.

Under a new corporate tax regime, small and medium-sized enterprises will have their taxes substantially reduced. 75% of up to the first $10,000 of a company's chargeable income and 50% of up to the next $90,000 will be exempt from tax. The remaining chargeable income will be taxed at a newly lowered rate of 24.5%. The new tax regime will take effect from Year of Assessment (YA) 2002.

Apart from the desire to encourage enterprise and help, in particular, companies that are just starting out, the cut in the corporate tax rate is driven by two other factors. They are: first, the need for Singapore to keep up with the global trend of falling corporate tax rates. Second, the recognition that it is more difficult for the government to pick winners in the New Economy, and hence corporate tax rates should be lowered to benefit all businesses, whilst tax incentives for particular industries are retained.

Another measure that will lower business costs for all enterprises is the reduction of the property tax rate from 12% to 10%. Minister Hu called on all landlords to pass on the savings in property tax to their tenants.

To encourage companies to use stock options in employee motivation, a new Company Stock Option (CSOP) scheme will give generous tax exemption for stock options¹. Companies have to offer the stock options to at least 50% of their employees to qualify for the scheme. This is to encourage companies to offer stock options to their lower-paid workers as well. This scheme applies to all companies, and builds on the Entrepreneurial Employee Stock Option scheme (EESOP) which was designed for start-ups and announced in last year's budget.

¹ Income tax exemption will be granted for up to $1 million worth of stock option gains arising from the exercise of the employee's options over a 10-year period. Out of the $1 million, the first $2,000 worth of gains each year will be given 100 percent tax exemption. This makes the scheme very attractive for the lower-paid employees. 25 percent of the remaining gains will also be exempted from tax.

Local businesses that are especially promising will continue to be groomed, under the Economic Development Assistance Scheme (EDAS) administered by EDB. The Productivity and Standards Board (PSB) will help others adopt the use of IT, modernise their management, and restructure their operations. Ailing businesses that have been caught on the wrong end of the growth curve can also get help from PSB in upgrading their operations or shifting to industries with better growth prospects.

HDB shopkeepers are one group which has been singled out for assistance. The government will be introducing a programme to help them upgrade their operations or retrain for employment in other industries, and help ease their retirement should they choose to do so. More details will be given by the Ministry of National Development during the Committee of Supply Proceedings.

Individual Effort and Enterprise Encouraged

An improved personal income tax regime is one of many ways in which the government is encouraging individual effort and enterprise in the Budget. Under the new personal tax framework that will take effect from YA 2002, the bottom income band is completely exempt from tax, and all income brackets will get a tax cut. The top marginal rate will fall to 26 percent from the present 28 percent. The cut in personal income tax rates will save median taxpayers 26% on their tax bills, and generate even more percentage savings for the lower-income taxpayers. Taxpayers will continue to enjoy a GST rebate of $250.

In his speech, Minister Hu singled out innovation and enterprise as the key drivers of growth of the New Economy. For entrepreneurs who are running their own businesses, Minister Hu announced that CPF policies will be adjusted such that self-employed persons basically receive the same tax benefits from the CPF scheme as employees. A self-employed person can get tax relief for CPF contributions amounting to 36 percent of his income, subject to a maximum income of $72,000. This will take effect from YA 2002.

Sharing the Budget Surplus

The government's package of surplus sharing provisions this year is the most generous to date. Made possible by the budget surplus, the measures were designed to share the fruits of last year's good economic performance with all Singaporeans. These include a progressively designed package of rebates for service and conservancy charges and rental, a Utilities Save scheme, and a personal income tax rebate of 10%. $250 million will also be added to the ElderCare Fund and $100 million to the Medical Endowment Fund, to help the low income with their medical and nursing home needs.

Knowledge Creation, Education and Lifelong Learning

Knowledge and ideas were given centre-stage in the new Budget. The Education Ministry will receive a budget of $6.3 billion to equip students with creative reasoning and other skills essential for the knowledge-based economy. An additional $500 million will be pumped into the Lifelong Learning Endowment Fund, and more than $30 million will be spent on the Manpower Development Assistance Scheme and other initiatives geared towards helping workers upgrade and learn new skills.

The government will continue to promote research and development, especially in the field of life sciences. For the next five years, the Science & Technology Plan 2005 (S&T 2005) costing $7 billion will be at the heart of efforts to promote research and d

MINISTRY OF FINANCE