III REVENUE AND TAX CHANGES

[Mr Speaker in the Chair]

[Mr Speaker in the Chair]

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, let me now turn to the proposed tax changes.

We have recovered from the Asian financial crisis relatively unscathed and much earlier than expected. The timely implementation of the cost cutting package played an important part in helping the economy rebound quickly. We expect growth for the economy as a whole to remain strong this year. However, not all sectors are fully out of the woods. For example, construction and business services are still under-performing. In addition, the manufacturing and electronics sectors which led the recovery face strong competitive pressures. To ensure that the momentum of economic recovery is sustained, I will be announcing the extension of some tax measures introduced in the cost-cutting package, partially or in full, to help contain cost pressures.

Longer term, we face structural problems posed by an ageing population. The Inter-Ministerial Committee (IMC) on the Ageing Population made comprehensive recommendations and these are being studied. Although many of the problems raised have longer term implications, we should start to address some of the less complex issues. I will therefore be announcing several tax changes to encourage Singaporeans to plan prudently for their needs after retirement and also to encourage greater family cohesiveness. There will also be incentives to enhance our competitive edge, encourage the growth of knowledge intensive and high value-added activities and measures to foster entrepreneurship.

I will first touch on tax changes for individuals and the family.

TAX CHANGES FOR INDIVIDUALS AND THE FAMILY

Supplementary Retirement Scheme

One of the areas studied by the IMC on the Ageing Population is financial security. The IMC has recommended that financial security should comprise a "basic needs Central Provident Fund model", and a "complementary private sector system" to encourage Singaporeans to supplement their CPF savings by contributing voluntarily to private funds. The Government agrees with this recommendation.

We will introduce a Supplementary Retirement Scheme (SRS), which allows Singaporeans to contribute voluntarily over and above their CPF savings. Contributions to SRS will be accorded tax deductions at the time of contribution, with tax being payable only when the savings are withdrawn. Participants will have considerable flexibility in investing their savings.

The voluntary SRS contributions can only be made by employees, subject to a percentage cap based on their salary. Employers shall not contribute. SRS will not be an additional cost to business.

The Government's intention is to allow foreigners who are working in Singapore to also participate if the scheme can be useful for their retirement.

As the SRS is a complex scheme, details of the scheme will take time to work out. Views from the private sector will be sought on the implementation aspects. We expect to implement the scheme by next year.

Income Tax Relief for Dependants

The report of the IMC has raised public awareness on care of the elderly. We believe that the elderly are best cared for by their children in the familial surroundings of their own homes.

Currently, there is a tax relief of $4,500 for the maintenance of each aged parent if the taxpayer is staying with the aged parent or a lesser amount of relief at $3,500 if the taxpayer is not staying with his parent. To provide greater recognition to those who stay with their parents, the relief for them will be raised by $500 to $5,000. For those who maintain their aged parents but do not stay with them, the relief will remain at $3,500.

The change will take effect from the Year of Assessment 2000. Revenue loss to Government will be about $5 million.

Tax Treatment for CPF Savings Beyond the Minimum Sum

Currently, under the Minimum Sum Scheme, the Minimum Sum may be left with CPF Board, deposited with an approved bank or used to purchase an annuity. CPF savings in excess of the Minimum Sum can be withdrawn at age 55. To encourage more prudent financial planning with CPF savings, the current tax exemption for annuities bought with the Minimum Sum will be extended to annuities bought with CPF savings beyond the Minimum Sum. The tax treatment will similarly be accorded to interest income arising from the deposits of CPF savings beyond the Minimum Sum deposited with approved banks. Several conditions, such as those of the Minimum Sum Scheme will apply. Details will be released by CPF Board in due course.

Extension of Tax Relief for CPF Top-Up to Grandparents

Apart from providing for their own financial security, individuals currently enjoy a tax relief for cash top-ups to the Minimum Sum Account of their parents. At present, a taxpayer who tops up in cash to his own or his parents' retirement accounts will be allowed a tax relief on the amount topped up, up to $6,000 a year. To promote inter-generational ties and the concept of extended families, I have decided to extend this relief to cover top-ups in cash for grandparents with effect from Year of Assessment 2001. Details will be released by CPF Board in due course.

Personal Tax Rebate

Last year, the Government gave a one-off 10% tax rebate to help mitigate the impact of the recession. As economic recovery is well underway this year, the 10% rebate will not be extended. Instead, a one-off, across-the-board rebate of 5% on individual income tax for Year of Assessment 2000 will be granted. Estimated revenue loss to Government is $200 million.

Rebates on HDB Service and Conservancy and Rental Charges

Following the GST-related changes made to personal income tax, currently about 65% of individuals no longer pay income tax and will not benefit from income tax rebates. To assist people in this group, Government will grant rebates on HDB Service and Conservancy (S&C) charges and rents to citizens staying in owner-occupied HDB flats and rented flats. The rebates will be as follows:

a) One-Room Flats

Two months' net rent and two months' net S&C charges. The rental and S&C rebates will be made on 1st June and 1st December this year.

b) Two-Room Flats

One month's net rent and two months' net S&C charges. The rental rebate will be made on 1st December, and the S&C rebates on 1st June and 1st December this year.

c) Three-Room Flats

One and a half months' net S&C charges. The S&C rebate will be made on 1st June and 1st December this year.

d) Four-Room Flats

Three quarter month's net S&C charges. The S&C rebate will be made on 1st December this year.

e) Five-Room Flats

Half a month's net S&C charges, to be made on 1st December this year.

The estimated cost of these rebates is $25 million. The rebates will be given after deducting GST offset rebates and S&C grants associated with utilities rebates.

GST-Related Offsets and Rebates

Last year, I announced that in view of the difficult economic conditions, the GST offset package, consisting of rental and S&C rebates for 1 to 3-room HDB households would be extended for two years until March 2001. I am happy to confirm that the GST offset package will continue to be given this year. The rental and S&C rebates are as follows:

a) Rental Rebates

For 1-room flats: a rental rebate of $12 per month

For 2-room flats: a rental rebate of $8 per month

b) Rebates for S&C Charges

For 1-room flats: $8 per month

For 2-room flats: $7 per month

For 3-room flats: $4 per month

The estimated cost of these rebates is $19 million.

Offset Package for Utilities Rate Revision

In June 1997, the Government announced the revision of water tariffs and water conservation tax to a uniform flat rate for all users. The increases were to be phased over 4 years, with the last increase scheduled for 1st July 2000. The water tariffs, including conservation tax, will increase by between 14.3 cents and 23.3 cents per cubic metre for domestic consumers. The non-domestic water rate will remain unchanged at $1.52 per cubic metre.

To offset higher sewerage costs, the waterborne fee will be raised as scheduled by 5 cents per cubic metre for domestic consumers and 9 cents per cubic metre for non-domestic consumers, also with effect from 1st July 2000.

The Government will continue to help lower-income households cope with the water tariff increases and I am happy to confirm that the offset package announced in last year's Budget will be continued this year. The utilities rebates are $200 for 1 to 3-room HDB flats and $100 for 4-room HDB flats. The rebates will be credited against the utilities bills of eligible households for the month of September. Households 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. This will cost the Government about $81 million.

Grants for S&C charges to HDB lessees and tenants, ranging from $36 to $66 a year will also continue to be given. The grants will start from July this year and 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. They will be credited directly into the S&C accounts of eligible lessees or tenants with their Town Councils. This will cost the Government $29 million.

I will now move on to tax changes for companies and businesses in general.