TAX CHANGES FOR INDIVIDUALS

Income Tax Rebate

Despite a sluggish global electronics market, we managed to achieve a creditable 7% economic growth for the whole of 1996. This is due in no small part to the hard work and enterprise of our people. I have therefore decided to reward their effort by giving an across-the-board one-off rebate of 10% on individual income tax in Year of Assessment 1997. The estimated revenue loss to Government is $250 million.

Income Tax Relief for Dependants

As our population ages, care for the elderly will become an area of increasing concern. We believe that the elderly are best cared for by their children in the familial surroundings of their own homes. We therefore encourage children to live with their aged parents and to provide them the necessary care and support. Currently, there is already a tax relief of $3,500 for the maintenance of each aged parent. As a recognition to those who live with their elderly parents, I have decided to introduce a two-tiered relief for aged parents. The relief for those who live with the aged parents in the same household will be raised from $3,500 to $4,500. For those who maintain their aged parents but do not stay with them, the relief will remain at $3,500.

I am also proposing the following changes:

increase the allowable wife relief from $1,500 to $2,000;

increase the allowable normal child relief from $1,500 to $2,000 each; and

relax the income ceiling condition for eligibility of parent relief, wife relief, handicapped siblings relief and child relief. The respective reliefs will be allowed so long as the dependant has income of not more than $2,000 in the year, instead of the current level of $1,500.

The above changes will take effect from the Year of Assessment 1998. The revenue loss to Government is estimated to be $40 million a year. Rebates on HDB Service and Conservancy and Rental Charges

Following the GST-related changes made to personal income tax, currently some 70% of individuals no longer pay income tax. To ensure that their contributions to the economy are also recognised, the Government will grant rebates on HDB Service and Conservancy (S&C) charges and rentals to citizens staying in rented and owner-occupied HDB flats. The rebates will be as follows:

1-Room Flats

Two months' net rent and three months' net S&C charges, after deduction of the GST offset rebates and the S&C grant which I will elaborate later. The rental rebates will be made on 1st October and 1st December, and the S&C rebates on 1st October, 1st November and 1st December this year.

2-Room Flats

One month's net rent and three months' net S&C charges, after deduction of the GST offset rebates and S&C grant to be given. The rental rebates will be made on 1st October, and the S&C rebates on 1st October, 1st November and 1st December this year.

3-Room Flats

Three months' net S&C charges, after deduction of the GST offset rebates and S&C grant to be given. The S&C rebates will be made on 1st October, 1st November and 1st December this year.

4-Room Flats

One month's net S&C charges, after deduction of the S&C grant to be given. The S&C rebate will be made on October this year.

5-Room Flats

One month's net S&C charges, to be made on 1st October this year.

The estimated cost of these rental and S&C rebates is $36 million. Rebates for Revisions in Utilities Rates

The Government had earlier announced that water tariffs and the water conservation tax would be raised and restructured over three years to get Singaporeans to treat water as a precious and strategic resource. It was also announced that the Government would offset the water rate increases for the lower income households so that while they would have to pay more for water like everyone else, overall they would not be worse off. This would be done partly through providing rebates on utilities bills and partly through giving service and conservancy (S&C) grants to the smaller HDB flats. Last year, I also announced that, subject to the state of the economy, the Government would continue to grant utilities rebates to offset the increase in electricity tariffs for the lower income households in 1997 and 1998.

The Government has decided to give a rebate on the public utilities bills for Singaporeans living in 1-, 2-, 3- and 4-room HDB flats. The amount will be $100 for 1-, 2-, and 3-room HDB flats, and $50 for 4-room HDB flats. The utilities rebates will be credited against the utilities bills of eligible households for the month of September which are payable in October. Households with smaller bills which are unable to use up the rebate within the month can carry over the balance of the rebate until it is fully used up. The Government has also decided to grant the same utilities rebate of $100 for 1-3 room HDB flats and $50 for 4-room HDB flats in 1998.

In addition, the Government will provide additional grants to help defray the S&C charges for Singapore citizens staying in 1-, 2-, 3- and 4-room HDB flats. The S&C grant will be $3 per month for 1-room flats, $4 per month for 2-room flats, $5.50 per month for 3-room flats, and $4 per month for 4-room flats. The grant will be given monthly for a two year period from July 1997 to June 1999.

The utilities rebate, together with the S&C grant, will more than offset the increase in water and electricity rates for the 1 to 3-room HDB flats. For the 4-room HDB flats, the package of utilities rebate and S&C grant will cover at least half of the increase in utilities rates. The utilities rebate and additional S&C grant will cost the Government about $72 million a year. Subject to good economic performance, the Government plans to continue to grant utilities and S&C rebates to the lower income households in the next few years to help them defray the increase in their utilities bills.

Those lower income households who do not live in HDB flats and hence are unable to benefit from the utilities rebate and S&C grant can obtain help from the Citizens Consultative Committees (CCCs) assistance scheme. The scheme was created in 1994, when GST was introduced, to help lower income households who for whatever reason are unable to benefit from the package of offsets for GST. This CCC assistance scheme will be extended to lower income households affected by the increase in utilities rate but who are unable to benefit from the utilities rebate and S&C grant.

CPF Medisave Top-Up Scheme

Last year, we topped up the Medisave account of Singaporeans to emphasize the key role of Medisave in providing for the medical needs of citizens. To further assist Singaporeans to build up their Medisave, the Government will pay $100 into the account of every Singapore citizen between 21 and 59 years of age, and $200 into the account of every citizen aged 60 and above. The larger quantum for the senior citizens is in recognition of their contributions towards nation building, their lower accumulation of Medisave during their working years, and also their greater medical needs. The payment will be made on 1st October 1997. This is expected to cost the Government $227 million.

Pre-Medisave Top-Up Scheme

The Pre-Medisave Top-Up Scheme is to help older Singaporeans who retired before or soon after the introduction of Medisave to build up their Medisave accounts. The first two instalments under the Scheme had been paid in January 1996 and January 1997. The third and last instalments are to be paid in January 1998 and January 1999, subject to the state of the economy. As the economy has done reasonably well, I am happy to confirm that the Government will pay the third instalment of the Pre-Medisave Top-Up Scheme in January 1998 as scheduled.

The top-up grant will be paid into the CPF Medisave accounts of eligible Singaporeans who are 63 years or older on 1st April 1997. For this third instalment, the co-payment required will be $20. In the first two instalments, not all eligible persons participated in the scheme as some might have had difficulties making the $50 co-payment. Lowering the co-payment to a token $20 is a special gesture to enable as many elderly Singaporeans as possible to benefit from the scheme whilst maintaining the principle that health care should be a joint responsibility between the individuals, their families and the Government.

Eligible recipients will have to make the co-payment of $20 between now and 31st December 1997 into their CPF Medisave Account. The Government will match this $20 with a contribution of $100 to $350 depending on the age group. 300,000 senior citizens qualify for this scheme and the total cost of this, if fully taken up, is $85 million.

Voluntary Contributions to CPF

In 1995, the Ministry of Labour announced that mandatory CPF contributions by employers will no longer be required for foreigners who are issued with an Employment Pass, Professional Visit Pass or Work Permit on or after 1st August 1995. A grace period up to 31st December 1998 was given if foreign workers jointly apply with their employers to the CPF Board to continue with the mandatory CPF contributions provided the employee remains with the same employer.

Under current tax laws, where the employer and employee agree in the contract of employment to contribute to CPF, the employee's contributions continue to be tax-deductible even though it is no longer required under the CPF Act. The employer's contributions are also deductible for the employer but is considered as income and subject to tax in the hands of the employee. This tax treatment allows employers to tax-plan and enjoy the tax deduction merely by including the requirement for CPF contributions within the contract of employment, even though it is no longer required under the CPF Act.

In line with our policy of allowing preferential tax treatment only for compulsory CPF contributions, I have decided to rationalise the tax treatment such that all CPF contributions made voluntarily or obligatory under contracts of employment will no longer be tax deductible for both the employer and the employee. Further, the employers' contributions will be taxable as income in the hands of the employee. As a concession, the new tax treatment will take effect from 1st January 1999. However, exception will be made for Singaporeans posted overseas. In support of the regionalisation programme, we will continue with the current tax exemption for Singaporeans posted overseas who make voluntary CPF contributions.