Restructuring Taxes, Creating Jobs03 May 2002
1 Deputy Prime Minister and Minister for Finance Lee Hsien Loong unveiled on Friday the Financial Year 2002/03 Budget to restructure the Singapore economy and help Singaporeans adapt to the changes. At the heart of the new Budget lies the Economic Restructuring Package. Both corporate and personal income tax will be reduced to 22% this year, and to 20% in three years' time. The GST goes from 3% to 5% on 1 Jan 2003.
2 A comprehensive offset package will ensure that most Singaporean households will have their extra tax fully offset for at least 5 years, and often longer. The Government particularly promises every lower income household that it will have its extra tax fully offset for at least 5 years.
3 Announcing a better growth projection of 2% to 4% for 2002, DPM Lee stressed that the tax changes were essential to keep Singapore competitive over the longer term, and to attract companies and talent to locate in Singapore. This was the best way to ensure good jobs and prosperity for Singaporeans.
A Generous GST Offset Package
4 A comprehensive GST offset package will ensure that all lower-income households will not be worse off during the 5-year transition period. The most important offset measure will be the Economic Restructuring Shares (ERS). ERS will be given out to all Singaporeans to help them adapt to the structural changes in the economy. More than 90% of Singaporeans will receive 1,200 shares worth $1 each. Singaporeans who reside in properties with Annual Values above $10,000 will receive 600 shares, as they are likely to enjoy significant savings from personal income tax cuts.
5 The shares will be given out in three annual tranches starting from 1 Jan 2003 and will earn annual dividends over 5 years, from 2004 to 2008. Active NSmen will get 200 bonus shares, while Inactive NSmen will get 100 bonus shares. Dividends will be paid on 1 March every year. The dividend rate will be a guaranteed minimum of 3% per year with a bonus dividend rate equal to the real GDP growth rate of the preceding calendar year to be declared annually. Recipients can cash in their shares with the Government once they are issued. However, Singaporeans are encouraged to keep their ERS to maturity to earn the maximum amount of dividends.
6 To further help lower-income Singaporeans cope with the GST increase, HDB households will be granted rebates on their rentals and Town Council Service & Conservancy Charges (S&CC) for five years. Additional subsidies will also be given to help offset all GST charges for subsidised wards and polyclinics, public education, and Town Council S&CC. The Public Assistance rates and Singapore Allowance for pensioners will also be increased. Finally, a Citizens' Consultative Committee (CCC) Assistance Scheme will assist households with monthly income less than $3,600, if their offset package does not fully cover the extra tax arising from the GST increase for 5 years.
7 The CCC Assistance Scheme will be chaired by Mr Chan Soo Sen, Minister of State in the Prime Minister's Office. Mr Chan will also chair a Committee to Combat Profiteering, which will work with the advisors and grassroots organisations in the constituencies to monitor the prices of selected basic goods and services, and call attention to any instances of profiteering.
Other Corporate and Personal Income Tax Changes
8 DPM Lee also announced key changes to restructure the corporate and personal income tax systems. The Government will introduce a loss-transfer system of group relief with effect from YA 2003 to help companies reduce the cost of doing business and to encourage more risk-taking. A one-tier corporate tax system will replace the current full imputation corporate tax system, reducing the cost of administration and compliance for companies.
9 As recommended by the ERC Sub-Committee, the Government will enhance the tax treatment of stock options. There will also be a new category of taxpayers called "Not Ordinarily Resident" taxpayers. This new scheme aims to draw global talent to base themselves in Singapore, and manage the regional operations of their companies from here.
10 The new Budget also introduced tax incentives to strengthen the financial industry and promote enterprise development. These included the enhanced Approved International Shipping Enterprise Scheme, which will attract international shipping companies and boost the transport and logistics sector. Finally, there were also changes to personal income tax reliefs. These include a 50% increase in National Service reliefs for both Active and Inactive NSmen and their wives and parents which will take effect from YA 2003.
For details, please refer to the official Budget 2002 website: www.budget2002.gov.sg.
Members of the public can use the online benefits calculator located at www.budget2002.gov.sg/offset to check how the 2002 Budget benefits them.
MINISTRY OF FINANCE