Singapore cuts taxes to remain competitive

Singapore cuts taxes to remain competitive

Agence France-Presse, Singapore

Singapore on Friday announced hefty cuts in corporate and
personal income taxes to lower the cost of doing business in the
city-state, which is feeling the pinch of stronger regional
competition.

Deputy Prime Minister and Finance Minister Lee Hsien Loong
said corporate taxes and personal income taxes will be slashed to
20 percent from 24.5 and 26 percent respectively within three
years.

Starting this year, personal and corporate taxes will be
reduced to 22 percent, with the rest of the cuts to be fully
implemented by the year to March 2005 budget.

To partly offset revenue losses, the government will raise the
goods and services tax (GST) from three percent to five percent
by 2003, he said in his budget speech at parliament.

Singaporeans on lower incomes will receive relief measures
totaling 1.2 billion Singapore dollars (US$665 million) to
cushion the effects over a five year period.

"I would say that this budget is pro-growth, pro-jobs and
compassionate," said Lam Kok Shang of KPMG Tax Services.

He said 20 percent corporate and income taxes, while higher
than those in Hong Kong, were "competitive" as investors had to
consider other factors.

Vasu Menon, an analyst with Internet bank finatiQ, cited
estimates showing that a every percentage point cut in the
corporate tax rate would lift profits by 1.3 percent.

But the share market barely reacted to the widely anticipated
announcement, dealers said. The key Straits Times Index edged up
by a mere 0.66 points to 1,741.01.

Targeted government revenue in the year to March is 29.21
billion dollars, with spending seen at 28.33 billion dollars.

The modest forecast surplus of 885.51 million dollars followed
a deficit of 1.43 billion dollars in the last fiscal year when
the economy plunged into a recession.

Lee said the tax cuts would be fully implemented, "barring a
major change in the economic and political climate which
unfortunately cannot be completely ruled out given the uncertain
regional and global environment".

Reducing direct taxes was "fundamental to strengthening our
competitiveness".

"When companies compare the attractiveness in investing in
different countries, the corporate income tax flows straight
through to the bottomline.

"If we set our tax rate too high, we make it harder for
companies to make money, expand and create more jobs," he added.

He cited Germany which last year slashed corporate income tax
to 25 percent from 40 percent and the United States where the
effective rate is 11 percent.

Ireland is expected to cut corporate income taxes to 12
percent next year and Hong Kong's current rate is 16 percent.

"These examples show just how fierce the competition is.
Unless we keep pace with our competitors, we will inevitably lose
investments and business," Lee said.

Singapore would also set aside more funds to guard against
external threats, particularly from terrorism, in the aftermath
of Sept.11.

It will spend about S$10.64 billion on domestic and external
security operations, or 38 percent of total expenditure, due to
increased threats after the terror attacks in the U.S. last year.

In the last fiscal year, security spending accounted for 37
percent of total spending.