PART III - REVENUE AND TAX CHANGES

Mr Speaker, Sir, let me turn next to the fiscal position and the proposed tax changes.

A healthy budget surplus is forecast for FY94 as revenue collections were buoyant because of strong economic growth. The outlook for growth in 1995 remains strong at 7.5-8.5%, which is still above our medium term growth range of 6-7%. Revenue collection in FY95 is estimated at $24.3 billion. With operating and development expenditures budgeted at $18.5 billion, a surplus of $5.8 billion is anticipated.

A comprehensive GST of 3% was introduced in April last year as part of a major move to reform our tax structure. As the GST was not intended to increase overall tax collections, its introduction was accompanied by a package of tax cuts and rebates to offset GST revenues. The GST revenue collection was originally estimated at $960 million and the value of the GST offset package at $1.2 billion. Due to the unexpectedly high economic growth, both the GST collection and GST offset package have since been revised upwards to $1.5 billion and $1.7 billion respectively. Hence, overall, the introduction of GST will remain revenue negative. I would like to reiterate that Government is committed to making GST revenue negative in the short run and revenue neutral in the long run.

As 1994 was another successful year, there is scope for returning some of the budget surpluses to the economy. However, the route chosen will have to take into account the fact that the economy is entering a third year of very strong growth and some care is needed to avoid over heating.

On corporate tax, our medium term goal is to bring the rate down to 25%. However, there is no need to lower the tax rate again this year to further stimulate an already vibrant economy, so soon after the 3% cut which came into effect in Year of Assessment 1994. Instead, we will fine-tune our tax system to support regionalisation and high value-added economic activities. In line with Government's plan to promote fund management and investment banking activities, additional incentives to enhance their development will be introduced. We will also continue to review various taxes and duties, such as property tax and stamp duties, to lower business costs and improve business efficiency.

Personal income taxes were substantially reduced in Year of Assessment 1994 to accompany the introduction of GST. As a result, 71% of individuals no longer pay income tax. There is hence no need to make significant changes to the personal income tax structure this year, so soon after the last revision. Instead, other routes will be used to reward individuals for their contributions towards a successful year.

Let me now deal with the tax changes for companies.