LOOPHOLE IN INCOME TAX STRUCTURE

Dr Kanwaljit Soin asked the Minister for Finance whether the disparity between the maximum personal income tax and corporate tax rates will create a loophole for individuals in the highest income bracket to set up a company to take advantage of the lower corporate tax rates; and if he will remedy it.

Dr Richard Hu Tsu Tau: It is recognised that the three percentage point difference between the prospective top marginal rate of personal income tax of 30% and the company tax rate of 27% could provide an incentive for high income persons to incorporate. But in practice, only very few high income individuals could benefit from incorporation. Under our personal tax regime, the effective tax rate will only rise to 27% for individuals at a chargeable income of $823,333, after taking into account the $700 GST rebate. Furthermore, the costs of incorporation have to be considered, together with the need to meet regulatory requirements under the Companies Act.

I can assure the Member that the Inland Revenue Authority of Singapore keeps all tax planning devices under constant review and will take steps to close the loophole should it prove necessary.