III REVENUE AND TAX CHANGES

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

GDP growth in 1996 is forecast at 7-8%, in line with our medium term growth potential. Revenue collection is expected to be $26.0 billion. With operating and development expenditures budgeted at $18.9 billion, a surplus of $7.1 billion is anticipated.

A comprehensive GST of 3% has been implemented for 2 years since April 1994. GST revenue collection in FY95 is projected to be $1.6 billion. This is less than the value of the GST offset package, which is estimated at $1.8 billion. Hence, the introduction of GST continues to be revenue negative, as the Government had promised. The implementation of GST has generally gone smoothly but we will continue to fine-tune procedures to facilitate the conduct of businesses.

The GST has broadened our tax base and put us in a strong position to take the reform of our tax system a stage further. The Government_s basic aim is to simplify the tax system and tax factors of production as lightly as possible. A simplified tax system facilitates compliance and lowers both administrative and business costs. The strong revenues from levies imposed for specific purposes, such as COE and foreign workers levy, help to keep our direct and indirect taxes as low as possible. Lighter taxes will strengthen incentives for the population to work, save and grow the economy. The level of taxation needed depends on the Government's spending requirements. So long as the Government continues to be prudent with its expenditure, there will be no need to tax the economy heavily.

As the growth outlook in 1996 remains buoyant, there is no pressing need to stimulate the economy with drastic tax cuts. However, margins in some business sectors have been squeezed by rising manpower costs and the strong Singapore dollar. There is therefore a case for continuing our policy of gradually reducing Government levies and taxes in order to reduce business costs and improve profitability. We will also fine-tune tax incentives to promote high value-added activities and encourage investments in equipment for pollution control and the conservation of water and energy. Also, while tax incentives will continue to be used, other incentives, such as equity participation, grants and loans, will play a greater role to supplement tax incentives in attracting desirable activities. Human capital will be an increasingly important source of comparative advantage for the economy. To compete for and retain talent, the Government is committed to lowering the tax burden on individuals whenever its fiscal position allows. We will also simplify and restructure the personal income tax system to encourage hard work and reward achievers, particularly for the middle income groups.

As 1995 was another successful year, the Government will continue to implement special schemes to return part of Government's surpluses to Singaporeans who fall outside the income tax net. This will be done in ways which enhance the assets of our citizens and do not create dependency expectations.

Let me now deal first with the tax changes for companies.