INDIVIDUAL INCOME TAX

I move on to individual income tax. As the corporate tax rate has only been lowered by 1%, I do not propose to make any changes to the rates of personal tax as they are already low compared to many other countries. We have a graduated tax scale which starts at 3.5% at the lower end and rises steeply before levelling off at a maximum rate of 33%. This, combined with a scheme of tax allowances, ensures that the better off carries a fair share of the tax burden, whilst adequately rewarding effort and enterprise. In this connection, Members may wish to note that under our system of personal taxes, less than 10% of taxpayers (accounting for some 6.5% of economically active persons in Singapore) pay nearly three quarters of the total personal taxes collected.

Instead of adjusting personal tax rates, I propose to revise a number of reliefs in support of family formation and Government's call to families to care for their aged and handicapped dependants.

The following reliefs will be revised with effect from Year of Assessment 1990.

(a) Relief for handicapped dependants who are either siblings or children of the taxpayer will be raised from $750 to $2,500. This relief will be allowed so long as the handicapped dependant does not have an income of more than $1,500 in the year.

(b) Aged parent relief will be raised from $1,000 to $2,500.

(c) Wife relief will be raised from $1,000 to $1,500.

(d) Normal Child Relief for the first, second and third child will be raised from $750 to $1,500 each.

(e) Enhanced Child Relief for the second, third and fourth child below 12 years of age will be raised from the present 10%, 15% and 15% of the mother's earned income to 15%, 20% and 25% respectively. The maximum claim for the Enhanced Child Relief for each child below 12 years old shall also be raised from $10,000 to $15,000.

I hope that these increased reliefs will go some way to alleviate the financial burden of families with children, aged or handicapped dependants. The revised reliefs will result in an expected revenue loss of $50 million a year.

Procreation Incentives

I announced in my 1987 Budget Speech the Special Tax Rebate of $20,000 for newborn third child. To further encourage new births, the Government has decided to introduce a similar Special Tax Rebate of $20,000 for the newborn fourth child born on or after 1st January 1988. In other words, a tax free period of up to five years can be claimed by either the husband or wife, subject to a maximum rebate of $20,000 against their total tax liabilities over the period. This rebate will be available from Year of Assessment 1989. This will remove the anomaly that a woman gets Enhanced Child Relief for the fourth child but not Special Tax Rebate. An additional rebate equivalent to 15% of the wife's earned income will also be granted for the birth of the fourth child in lieu of maternity leave. However, this additional rebate can be offset only against the wife's income tax liabilities and must be absorbed within a period of five years. Normal Child Relief of $1,500 will also be given to the fourth child born on or after 1st January 1988.

Tax deduction for contributions to CPF and other approved pension and provident funds

Obligatory contributions by individuals to the CPF and other approved pension and provident funds are at present fully tax deductible. To prevent the use of these funds as tax shelters, I have decided that the following changes shall take effect from Year of Assessment 1990.

The deduction for an individual's contribution to approved funds, including the CPF, shall not exceed the statutory contributions under the CPF Act. In the case of additional wages, which include bonuses and commissions, deduction will be limited to the statutory CPF contribution from additional wages not exceeding 40% of the annual odinary wages.

I also propose that where an employer's contributions to the approved funds and CPF are in excess of the statutory requirements under the CPF Act, or are based on additional wages in excess of 40% of the employee's annual ordinary wages, the employee should be assessed to tax on the excess.