TAX CHANGES FOR INDIVIDUALS

Personal Income Tax

Because of the good performance of the economy in 1995, an across-the-board one-off tax rebate of 10% on individual income tax will be granted in Year of Assessment 1996. Revenue loss to the Government is estimated at $250 million.

There are 14 tax brackets in the present personal income tax schedule. To simplify the tax system, I propose to reduce the number of brackets from 14 to 10. At the same time, to further encourage hard work and to reward talent and enterprise, the top marginal income tax rate will be lowered from 30% to 28%, with appropriate reductions in the other rates. The new brackets and rates are shown at Annex III. (Cols. 821 - 822) Annex III - REDUCTION IN PERSONAL INCOME TAX RATES WITH EFFECT FROM YEAR OF ASSESSMENT 1997 (Cols. 821 - 822)

The new structure of tax brackets has been designed especially to lighten the tax burden of the middle income group, with chargeable incomes between $25,000 and $100,000. Many such families pay substantial amounts of car-related taxes or foreign workers levy, if they own a car or employ a maid. The changes will take effect from Year of Assessment 1997. Revenue loss is estimated to be $375 million.

Tax Relief for National Servicemen

Our NSmen play a crucial role in guaranteeing the security and prosperity of Singapore. In Year of Assessment 1993, the Government introduced tax reliefs for NSmen of $1,000 for active NSmen and $500 for other NSmen in order to recognise their special contributions. However, the value of these reliefs have been eroded by subsequent reductions in personal income tax rates. The Government has reviewed the amount of these reliefs and decided:

a) The relief for active NSmen will be doubled from $1,000 to $2,000. Active NSmen are those who are called up annually for in-camp training and other activities to maintain their operational efficiency.

b) The relief for all who have done their full time national service but are not now in the active national service will also be doubled from $500 to $1,000.

In addition, the Government also recognises the contribution of parents and wives of NSmen to Total Defence. The parents are the ones who brought up the NSmen. The wives have to share the burden of looking after the family when the NSmen are called up for in-camp training. The Government has therefore decided to extend the tax relief scheme for NSmen to the parents and wives of NSmen who are themselves Singapore citizens. Each parent will receive a tax relief of $500, regardless of the number of children who have undergone national service. Wives of NSmen will also each receive a tax relief of $500. The $500 relief is half the amount for NSmen who are not now in active national service.

The tax reliefs will apply to NSmen and the parents and wives of NSmen who have served in the SAF and also in other services, like the Police Force and the Singapore Civil Defence Force. These reliefs will take effect from Year of Assessment 1997. The estimated revenue loss is $16 million.

Rebates on HDB Service and Conservancy and Rental Charges

Many lower income Singaporeans do not pay personal income tax. To ensure that they too benefit from our economic success, the rebates granted last year on HDB Service and Conservancy (S&C) charges and rentals to citizen householders staying in rented and owner-occupied HDB flats will be extended for another year, with some modifications. The rebates will be as follows:

a) One-Room Flats. Three months' net rent and three months' net S&C charges, after deduction of the GST offset rebates. The rental and S&C rebates will be made on 1st July, 1st September and 1st December this year.

b) Two-Room Flats. Two months_ net rent and three months' net S&C charges, after deduction of the GST offset rebates. The rental rebates will be made on 1st July and 1st December, and the S&C rebates on 1st July, 1st September and 1st December this year.

c) Three-Room Flats. Three months' net S&C charges after deduction of the GST offset rebates. The rebates will take effect on 1st July, 1st September and 1st December this year.

d) Four-Room Flats. Two months_ gross S&C charges, to be made on 1st July and 1st December this year.

e) Five-Room Flats. Two months_ gross S&C charges, to be made on 1st July and 1st December this year.

The estimated cost of these rental and S&C rebates is $53

million.

Rebates on Public Utilities Bill

To further assist lower income households, the Government will grant a rebate on the public utilities bills of citizen households living in 1, 2, 3, 4 and 5-room HDB flats (whether rented or owner-occupied). The amount will be $150 for 1 and 2-room HDB flats, $120 for 3-room HDB flats and $100 for 4 and 5-room HDB flats. Payment of the rebate will be made in the second half of this year. Details will be announced in due course. This is expected to cost the Government $73 million.

If the economy continues to do well, I will consider granting similar rebates on public utilities bills for lower income households in 1997 and 1998. This rebate will far exceed the likely increase in annual public utilities bills for these households arising from revisions of electricity tariffs for several years.

CPF Medisave Top-Up Scheme

Medical costs are matters which concern every Singaporean, especially older citizens. Medisave, Medishield and Medifund have provided for the medical needs for nearly all citizens. Nevertheless, many still worry whether they have provided enough for themselves and their families. This worry is really not justified. But as a gesture to reassure Singaporeans and to emphasise the key role of Medisave in providing for the medical needs of citizens, the Government will pay $200 into the Medisave account of every Singapore citizen aged 21 and above. The payment will be made on 1st October 1996. This is expected to cost the Government $390 million.

Pre-Medisave Top-Up Scheme

The Prime Minister announced last year a Pre-Medisave Top-Up Scheme in three instalments, to help older Singaporeans who retired before or soon after the onset of Medisave to build up their Medisave accounts. The first instalment was paid in January 1996. The Prime Minister has said that the second instalment due in January 1997, and the third instalment due in January 1998, would depend on the state of the economy. As the economy has done well, I am happy to confirm that the Government will pay the second instalment of the Pre-Medisave Top-Up Scheme in January 1997 as scheduled. The top-up grant will be paid into the CPF Medisave accounts of eligible Singaporeans who are 62 years or older on 1st April 1996. As with the first instalment, eligible recipients will have to make a co-payment of $50 between 1st July 1996 and 31st December 1996 into their CPF Medisave Account. The Government will match this $50 with a contribution of $100 to $350 depending on the age group. 300,000 senior citizens qualify for the scheme and the total cost of this, if fully taken up, is $85 million.

In addition, the Government has reviewed the Pre-Medisave Top-Up Scheme, and decided to enhance it by adding one more instalment, increasing the package from three to four instalments. The fourth instalment will be paid in January 1999. The eligibility criteria and the co-payment requirements are the same as for the earlier instalments. The fourth instalment will also be subject to the state of the economy then. CPF Share Ownership Top-Up Scheme (SOTUS)

To help Singaporeans build up sufficient CPF savings to buy shares in Singapore Telecom and other Government owned companies and statutory boards which will be privatised from time to time, the Government implemented two SOTUS exercises in 1993 and 1995. This year, the Government will implement a third SOTUS scheme to top-up CPF accounts of citizens aged 21 and above. Special recognition will be given to national servicemen, as recommended by the RECORD II Committee. The Government will therefore make contributions to CPF accounts as follows:

$300 to all Singapore citizens

$400 to citizens who have performed NS

$500 to citizens on active NS. To qualify, CPF members must credit at least $500 into their accounts during the 12-month period from 1st March 1996 to 28th February 1997. The Government will pay in its contributions on 28th February 1997. Members who contribute less than $500 will receive a pro-rated contribution from the Government. This is expected to cost the Government $480 million.

Second Offering of Singapore Telecom Shares

In order to build a share owning society, the Government will from time to time offer Singaporeans stocks of blue-chip Singapore companies at a discount. This will give Singaporeans a more direct stake in the growth and prosperity of Singapore.

The first offering of ST shares to Singaporeans in November 1993 was a resounding success. The Group A share scheme increased the number of Singaporeans owning shares from 250,000 to 1.4 million. The scheme has also succeeded in getting Singaporeans to hold on to the shares as long term investments, instead of stagging them for a quick profit. 95% of Group A ST shareholders still own their ST shares. Those who bought 600 Group A ST shares in November 1993 for $1.90 each and have kept them now have 720 ST shares, worth about $3.50 each. Their initial investment of $1,140 is now worth $2,520 - more than double in less than three years.

The Government has decided to make a second offering of Singapore Telecom shares to Singaporeans. The offering will be packaged like the Group A scheme in the initial ST flotation. The shares will be offered at a discount to the market price to CPF members. They will come with a loyalty bonus package to encourage Singaporeans to hold on to the shares as a long-term investment. This is expected to take place in the second half of 1996. The details are being worked out and will be announced at a later date.

Income Tax on Net Annual Values of Residential Properties

Presently, the Net Annual Value (NAV) of a property used for residential purposes is deemed to be profits arising from property and is liable for individual income tax unless specifically exempted. Currently, for owner-occupied property, the first $75,000 of its NAV is exempted from tax. To allow for increases in the values of residential properties, the exemption limit will be increased to $150,000. This will take effect from Year of Assessment 1997.

Estate Duty

Currently, estate duty is structured in two tiers: the first $10 million value of estate chargeable to duty is taxed at 5% and all subsequent amounts at 10%. Exemption is given to the first $3 million of all residential properties and the first $500,000 of all movable assets, including CPF balances. CPF balances in excess of $500,000 are also exempt.

To allow for the effects of inflation and rising asset prices over the years, the Government has decided that the $10 million threshold below which the first tier rate of 5% will apply will be raised to $12 million. The exemption limits for residential properties and movable assets, including CPF balances, will also be raised to $9 million and $600,000 respectively. CPF balances in excess of $600,000 will continue to be exempt. This tax change will take immediate effect.