TAX CHANGES FOR INDIVIDUALS

Income Tax Rebate

Because of the buoyant performance of the economy last year, I have decided to give an across-the-board one-off rebate of 5% on individual income tax for Year of Assessment 1994. The estimated revenue loss to Government is $76 million.

Rebates on HDB Service and Conservancy and Rental Charges

Also, because of the good economic growth last year, the Government has decided to grant rebates on HDB Service and Conservancy (S&C) charges and rentals. These rebates will be additional to the GST offset rebates which take effect from 1st April this year. The rebates will vary with flat type and are as follows:

a) 1-Room Flats

Payment on their behalf by Government of two months' net rent and three months' net S&C charges, after deduction of the GST offset rebates. The rental payments will be made on 1st April and 1st December and the S&C payments on 1st April, 1st August and 1st December this year.

b) 2-Room Flats

Payment on their behalf by Government of one month's net rent and three months' net S&C charges, after deduction of the GST offset rebates. The rental payment will be made on 1st April and the S&C payments on 1st April, 1st August and 1st December this year.

c) 3-Room Flats

Payment on their behalf by Government of two months'net S&C charges after deduction of the GST offset rebate. The payments will take effect on 1st April and 1st December this year.

d) 4-Room Flats

Payment on their behalf by Government of one month's gross S&C charges, to be made on 1st April this year.

e) 5-Room Flats

Payment on their behalf by Government of one month's gross S&C charges, to be made on 1st April this year.

The additional costs to Government for these rental and S&C rebates are estimated at $28 million.

Higher Interest Rate for the CPF Retirement and Special Accounts

Government has recently announced the intention to raise the CPF Minimum Sum from $34,600 to $80,000. The increase will be done gradually over 10 years. Half of the CPF Minimum Sum is to be kept in the form of cash. As savings in these accounts are held for the long term, Government will pay a higher interest rate for the CPF Retirement and Special Accounts. With effect from 1st July 1995, cash savings in the CPF Retirement and Special Accounts will attract a rate which is 1.25 percentage points above the normal CPF interest rate. Details of the scheme will be announced by the Minister for Labour later.

CPF Share Ownership Top-Up Scheme (SOTUS)

Last year, to help middle and working-class Singaporeans own shares in Singapore Telecom, we implemented a CPF Share Ownership Top-Up Scheme. Government contributed $200 into the CPF account of every citizen who had at least $500 credited into his account during the qualifying period. 1.26 million citizens received $242 million in matching contribution from the Government.

The Government expects to privatise other major Government owned companies and statutory boards from time to time. The next major exercise will be about two years from now. In order to help Singaporeans build up enough CPF savings to buy shares in this company, this year the Government will implement a second SOTUS scheme to top-up CPF accounts of citizens aged 21 and above. The Government will pay $300 into the account of a CPF member, provided he or his employer contributes at least $750 during an 18-month period from 1st March 1994 to 31st August 1995. We have extended the qualifying period from 6 to 18 months, to make it easier for Singaporeans to meet their co-payment requirement. Members who pay in less than $750 will receive a pro-rated contribution from the Government.

Extension of Claim Period for Procreation Incentives

At present, the period within which the special and further tax rebates can be absorbed is seven years. When GST is implemented on 1st April 1994, personal income tax rates will be cut and a tax rebate of $700 given. With these, some taxpayers who are currently enjoying the special and further tax rebates will not be able to consume the rebates to the same extent within the seven-year claim period. To assist taxpayers to better enjoy the procreation incentives, I have decided to extend the claim period for the special and further tax rebates from seven to nine years. This change will take effect from Year of Assessment 1994 for new claims as well as existing claims where the seven-year period has not expired.

Tax Changes to Encourage Singaporeans to Venture Overseas

In line with Government's call to Singaporeans to venture abroad, I announced last year that Singaporeans can choose to be non-residents for tax purposes if they have worked overseas for at least 6 months in any calendar year. As non-residents, they will not be taxed on their foreign income remitted to Singapore. In addition, these non-resident Singaporeans can claim special non-resident reliefs on their Singapore sourced income.

With the substantial reduction in the non-resident tax rate since 1986, many Singaporeans working overseas who declare non-resident status for tax purposes are unable to enjoy the non-resident reliefs. To encourage Singaporeans to venture overseas, I have decided to reduce the tax rates used to compute non-resident reliefs with effect from Year of Assessment 1995. The revised tax rates for each tax bracket is in Appendix 1 (Cols. 441 - 442). Appendix 1 - REDUCTION IN INCOME TAX RATES USED TO COMPUTE NON-RESIDENT RELIEFS UNDER SECTION 40 (Cols. 441 - 442)

Feedback indicates that employees are often reluctant to accept overseas postings as they are unable to enjoy tax deduction for voluntary CPF contributions. I would like to clarify that the law already allows tax deduction for contributions by such employees to the CPF which are obligatory by contract of employment, provided that they are residents for tax purposes. The tax deductibility for these contributions, as well as contributions to other approved pension and provident funds, will be capped at the compulsory CPF limit.

Similarly, employers will also be allowed a tax deduction for CPF contributions made in respect of staff posted overseas which are obligatory by contract of employment. This is provided that the staff posted overseas are engaged in activities related to the production of gains or profits which the employers receive in Singapore and are liable to tax thereon. However, at present, such contributions by the employers are taxable income to the staff posted overseas.

To encourage regionalisation efforts, I am pleased to announce that such contributions in respect of ordinary wages will be exempt from tax, up to the statutory limit for compulsory CPF contributions by employers. The tax change will take effect from Year of Assessment 1995.

Earned Income Relief for Taxable Retirement Benefits

Last year, to rationalise the tax treatment of retirement benefits, I announced that all retirement benefits, other than compulsory CPF, received from private employers will be taxable. These taxable retirement benefits can be paid out in several ways: as a lump sum, an annuity over five years or a life pension. This has given rise to uncertainty as to whether earned income relief can be claimed for all taxable retirement benefits. As retirement benefits are earned income, I am pleased to announce that earned income relief will be allowed in respect of all taxable retirement benefits received by employees from their employers. This change will take effect from Year of Assessment 1994.

Payment of Life and Personal Accident Policy Proceeds Without Probate or Letter of Administration

Death benefits from a life insurance or a personal accident insurance policy are subject to estate duty. To provide immediate financial relief to the family of the deceased, the Insurance Act (Chapter 142) currently allows up to $50,000 of death claims to be paid by insurance companies without having to wait for clearance from the Inland Revenue Authority of Singapore. Over time, the adequacy of this $50,000 has been eroded. To restore the adequacy of the financial relief, the present $50,000 limit will be increased to $150,000 from 1st April 1994.

Tax Deduction for CPF Contributions by Self-Employed

Self-employed persons who contribute to the CPF are allowed to deduct their contributions, inclusive of compulsory Medisave contributions, from their assessable income. The present limit for such deductions is 18% of the assessable income from self-employment, subject to a maximum of $12,960.

On 1st July 1993, the employer's CPF contribution rate was increased to 18.5%. In line with this, the limit for the tax deduction will be raised to 18.5% of the assessable income from self-employment, subject to a maximum of $13,320. This will take effect from the Year of Assessment 1995.