TAXATION

Corporate Income Tax

I propose to reduce the corporate tax rate from 33% to 32%. This is a modest reduction, but is indicative of the direction in which corporate taxation will move if economic conditions allow. It will also ensure that our corporate tax structure remains one of the most competitive in the world. The 32% tax rate will take effect from Year of Assessment 1990. As a corollary to the reduction, any dividends paid on or after 1st January 1989 would carry a credit of 32%. The revenue loss is expected to be $55 million a year.

I now move on to other corporate tax changes.

Withholding Tax Exemption on Swap Transactions

As financial markets become more internationalized, corporate borrowers have access to various innovative financial instruments and arrangements to reduce their borrowing costs and exposure to fluctuations in interest and exchange rates. One such financial arrangement is swaps. These transactions have gained importance in major financial centres such as London and New York. In order to enable banks in Singapore to be competitive in providing financial packages to their international customers, I have decided to exempt such transactions from withholding tax provided:-

a) the transactions are carried out between Asian Currency Units and non-residents; and

b) the transactions do not involve the Singapore dollar.

I hope that with this concession, banks in Singapore would be able to offer their clients such facilities at competitive rates. This measure is part of the Government's efforts to further develop our capital market. It will take effect from 1st April 1989.

Extension of One Year Accelerated Depreciation to Other Automation Equipment

The 1982 Budget Statement provided for the one year accelerated depreciation allowance to be given to capital expenditure incurred on the purchase of robots and other types of automated equipment. This has so far only been extended to robots, CAD/CAM and certain other office equipment. In line with our current automation thrust, as well as to take into account technological advances made in the area of automation equipment, I have decided to extend the one year accelerated depreciation allowance under section 19(A)(1A) of the Income Tax Act to a number of other automation equipment. These include the following:

• Automated Machining Equipment

• Automated Guided Vehicles

• Automatic Testing/Inspection Equipment

• Automatic Retrieval and Insertion Devices The concession will apply to all capital expenditure incurred on qualifying equipment during or after the basis period for the Year of Assessment 1990.

Tax deduction for computer equipment donations to approved educational and research institutions

To help upgrade and maintain the quality of training in Information Technology, I propose to allow deduction for the donations of computer equipment by companies to approved educational and research institutions with effect from Year of Assessment 1990. This scheme will be administered by my Ministry.

Tax Incentives for Building Modifications for the Disabled

To facilitate the employment of our disabled, I would like to encourage employers to make modifications to their working environment so as to accommodate disabled workers.

In this respect, I am prepared to consider allowing a once-off deduction against income for expenditure incurred in building modifications to cater for the disabled. In order to minimize abuse, such deductions would, however, be subject to a maximum of $100,000. This incentive would take effect in respect of modifications undertaken from 1st January 1989.