ACHIEVING OUR OBJECTIVES

Creating the Best Environment for Business A New Corporate Tax Regime

The Government is committed to creating the best conditions for private enterprise to flourish, while adhering to the principles of fiscal prudence. Our aim has always been to keep business costs down wherever possible and to ensure that our corporate tax rate remains competitive. In recent years, many developed economies such as Germany, United Kingdom, Australia and Ireland have lowered corporate tax rates in order to stimulate and attract investments. We have to keep pace.

Furthermore, in the New Economy, picking winners will become harder. Hence, while we will continue to provide tax incentives to spur the growth of strategic industries, we will also lower the tax rate generally so that new industries can mushroom and thrive.

Last year, our corporate tax rate was reduced by half a percentage point to 25.5%. This year I have decided to reduce the corporate tax rate by a further one percentage point to 24.5%, to take effect from YA2002. This will help us maintain our tax competitiveness in an increasingly globalised world. It will also help lower the tax burden of businesses in Singapore in the coming year when economic growth is likely to be less robust.

The Government also recognises that small businesses are an important component of the Singapore economy. To help such companies, I have decided to introduce a tax exemption scheme that will help them grow and get established.

With effect from YA2002, three-quarters of up to the first $10,000 of a company's chargeable income, and one-half of up to the next $90,000 will be exempt from corporate tax. The remaining chargeable income will be taxed at the newly lowered rate of 24.5%.

This means that many small and medium enterprises and start-ups will have their taxes reduced by more than half, for the same chargeable income. Based on current data, about two-thirds of taxable companies will be taxed at less than half the previous tax rate. Companies, most particularly smaller enterprises, can look forward to being able to plough more of their profits back to their businesses to exploit growth opportunities.

All companies, not just the small and medium-sized ones, will enjoy the tax exemption. The benefits passed on to companies arising from the lower corporate tax rate under this new tax regime are estimated to amount to $680 million annually. This overall lowering of the tax burden is a demonstration of the Government's resolve to keep our corporate tax rate competitive globally, and our belief in the importance of creating a pro-business environment that is conducive to entrepreneurship.

The tax exemption will not apply to Singapore dividends received by companies. Such dividends will be taxed at 24.5%. IRAS will release further details on how the new corporate tax regime is to be applied. Raising Productivity - the CSOP scheme

In today's environment, the most successful businesses will be those that are able to motivate their employees to greater innovation and enterprise. Performance-linked compensation systems, such as employee stock option schemes, can be powerful tools to achieve this objective.

As a special provision for start-ups, I introduced the Entrepreneurial Employee Stock Option Scheme last May where 50% of stock option gains is exempted from income tax for employees of such companies.

At that time, I indicated I would introduce a separate scheme that would be available to the more established companies. Today, I am glad to announce the "Company Stock Option" scheme, or the CSOP scheme for short.

Under the scheme, income tax exemption will be granted for up to $1 million worth of stock option gains arising from the exercise of the employee's options over a 10-year period. Out of the $1 million, the first $2,000 worth of gains each year will be given 100% tax exemption. This makes the scheme very attractive for the lower-paid employees. In addition, I have also decided to exempt from income tax 25% of the remaining gains. Coupled with the absence of capital gains taxes and our low personal tax rates, the taxation of employee stock option gains in Singapore will be very attractive.

The CSOP scheme will be available to all companies that meet certain conditions. One key condition that companies have to satisfy before they can qualify for the scheme is that they will have to offer the stock options to at least half the employees in the company. This is to encourage companies to provide the benefits of the scheme to lower-paid workers as well. The scheme will be available to options granted with effect from 1st April 2001. Details of the scheme can be found in Annex 1. - [Cols. 56-7 - Company Stock Option Scheme]. ANNEX 1 - COMPANY STOCK OPTION SCHEME Exemption of Withholding Tax for Software Payments

Technological advances have made the use of info-communications technology or ICT, and consequently software, increasingly widespread. We foresee a future in which almost all products and services will require the use of software either in their production or operation.

We want to lower the cost of doing business in Singapore, as well as encourage our businesses to make the best use of technology. The Government is also committed to creating an environment that is conducive to the growth of e-commerce.

With these in mind, and as part of our continuing efforts to enhance Singapore's competitiveness, I have decided that payments for the following categories of software made to non-residents will be exempted from withholding tax. These are: site licences, software downloaded from the Internet by end-users, and software bundled with hardware. This change will take effect for payments due on or after today. Writing Down Allowances for Intellectual Property

Increasingly, intangible assets such as intellectual properties and their exploitation will be a significant source of competitive advantage in the Knowledge Economy.

To enhance Singapore's competitiveness in this respect, I have decided to improve the current incentive scheme relating to patents and know-how. The improved scheme extends the scope of coverage to more categories of intellectual properties. Writing down allowances over a 5-year period will be granted for capital expenditure incurred on the following categories of intellectual properties acquired on or after today:

(a) Patents;

(b) Copyrights and Related Rights;

(c) Trade Marks;

(d) Registered Designs;

(e) Geographical Indications;

(f) Layout Designs of Integrated Circuits; and

(g) Protection of Confidential Information.

This improved scheme will also cover a wider range of industries. It will be administered by EDB and IDA. Details will be released by them shortly. Reduction of Property Tax Rate

In order to reduce business costs, I have decided to cut the property tax rate from 12 to 10%. This will improve Singapore's cost competitiveness vis-a-vis other countries. The cut will apply to all properties: commercial, industrial and residential. It will cost the Government an estimated $336 million a year.

The cut in property tax rate will take effect from 1st July 2001, when the 25% property tax rebate for commercial and industrial properties ends. The reduction will be particularly helpful to small businesses that are tenants of JTC and HDB properties. These businesses have been the main beneficiaries of the property tax rebate for industrial and commercial properties, passed on by the JTC, HDB and other landlords. The Government would like to encourage all landlords to pass on savings from the property tax rate cut to their tenants. Giving a Boost to Individuals Reduction in Individual Income Tax Rates

To reduce the tax burden for individuals, as well as reward individual effort and enterprise, I have decided to cut income tax rates of all income bands with effect from YA2002. The tax rates of all bands will be reduced by between two and five percentage points. The top marginal tax rate will be reduced from the current 28% to 26%. All individual taxpayers will pay less tax, with the majority paying at least 25% less tax.

In percentage terms, lower-income and middle-income taxpayers will benefit most. For example, an individual earning $35,000 a year will enjoy tax savings of about 30%. Taxpayers who earn $100,000 a year will enjoy savings of about 20%.

In 1994, we introduced GST and at the same time gave taxpayers a $700 GST-related income tax rebate to soften the initial impact of GST. The rebate was lowered by $50 each year until it reached $500 in YA 1998. In order to streamline the individual tax structure, I have decided to reduce the rebate over time, and incorporate its benefits into the individual tax structure. To this end, the first $7,500 of an individual's chargeable income will not be taxed, and the $500 GST-related income tax rebate will be reduced to $250 correspondingly, as a first step.

The net effect of all these changes to the individual income tax regime is to make all taxpayers better off.

Cutting personal tax rates will lower the tax burden of workers and encourage individual effort. Competitive personal tax rates will also help Singapore retain its local talent and attract new foreign talent.

The above measures will result in tax savings of $300 million a year for taxpayers. The new income tax rates are attached in Annex 2. (Cols. 58-9). ANNEX 2 - INCOME TAX RATES Raising the Tax Exemption Limit for CPF Contributions

by Self-Employed

Currently self-employed persons can claim tax relief for CPF contributions amounting to 20% of their income or $14,400, whichever is lower. Essentially this is only the employee's portion of the CPF contributions for employees of companies.

In the knowledge-based economy, we can expect more people to be self-employed. They should be encouraged to save for their old age to the same extent as those who are employees. The self-employed is, in a way, both employer and employee. Today, he is granted tax deductions for CPF contributions up to what employees are required to contribute for their ordinary wages.

This policy will be adjusted so that self-employed persons basically receive the same tax benefits from the CPF scheme as both employer and employee combined with effect from YA 2002. A self-employed person will get tax relief for CPF contributions amounting to 36% of his income, subject to a maximum income of $72,000. This way, entrepreneurs running their own businesses will not be disadvantaged. Self-employed persons will be more motivated to save for their retirement by voluntarily contributing more to their CPF accounts. The tax benefits they will gain from this policy change will amount to $6 million or more per year. This change will take effect for CPF contributions made from this year. Weathering the Transition

The key to our ability to stay focused, act as a nation and make the necessary strategic changes in our economy lies in the unity of our people. We must continue to build on the social cohesion and political stability that we have painstakingly developed over the years.

The Government will help those who are facing difficulties in the transition period as our economy restructures. In the short run, the Government will provide temporary assistance to those who need help to tide over hard times. In the long term, the best way to help them is to give them the means to help themselves, through education, training and retraining. Sharing the Budget Surplus

This year's package of "share-outs" will be the most generous to date. This package is possible both because of our past adherence to the principles of fiscal prudence and the hard work of all Singaporeans, that have allowed us to build up a substantial surplus. Sharing the budget surplus is an important way by which everyone benefits from the nation's success. CPF Top-ups

Eligible Singaporeans have, in January this year, received the first payment of the $500 to $1,700 CPF Top-up announced by the Prime Minister in August last year. The second payment, costing $1 billion, will be given within the next 12 months. The CPF Top-up is a tangible way of sharing the nation's success with Singaporeans. It was also unique in that it was the first time that a CPF Top-up was structured to give more to those in the lower income group. Personal Tax Rebate

Because of the good performance of the economy in 2000, an across-the-board one-off tax rebate of 10% on individual income tax will be granted in YA 2001, up from the 5% for YA 2000. This is another way of sharing budget surpluses with taxpayers. It will save taxpayers a total of $485 million. Utilities Save

As an extension of the utilities rebates given to HDB households from 1997 to 2000, the Government will be giving utilities rebates totalling $350 to households living in 1-to 3-room HDB flats, $300 to households living in 4-room flats and $250 to households living in 5-room flats. These will be given in 10 equal monthly payments from July 2001 to April 2002. There will be two months in the year in which households have to make full payments, so that they will be encouraged to save on water and electricity. As such, this scheme will be renamed Utilities Save.

Households living in 1- to 3-room HDB flats will get $35 a month, those in 4-room HDB flats $30 a month and those in 5-room HDB flats $25 a month. Any unutilised amount of the Utilities Save given in any month will be rolled over to be used in the subsequent months. This Utilities Save scheme is more generous than the $100 and $200 utilities rebates given last year and amounts to a total of $226 million. S&C Charges and Rental Rebates

The Government will extend and increase the rebates on HDB Service and Conservancy (S&C) charges and rentals granted over recent years to Singaporeans living in rented and owner-occupied HDB flats. The new package will be the most generous to date.

Households living in 1-room flats will receive rental rebates of $12 per month, rebates for S&C charges of $8 per month, four months' net rent and five months' net S&C charges.

Households living in 2-room flats will receive rental rebates of $8 per month, rebates for S&C charges of $7 per month, two months' net rent and four months' net S&C charges.

Households living in 3-room flats will be given rebates of $4 per month for S&C charges and four months' net S&C charges.

As for households living in 4-room and 5-room flats, they will be entitled to three months and two months of net S&C charges respectively. More details can be found in Annex 3. (Cols. 61-2). ANNEX 3 - Rebates for Service and Conservancy Charges (S&CC) and Rental Payments

The estimated cost of the entire package of rebates is $107 million. Low-income households which do not live in HDB flats can continue to receive help from the Citizens Consultative Committees (CCCs) Assistance Scheme. The Singapore Allowance

To help pensioners drawing low pensions cope with inflation, the Government introduced an ex-gratia allowance called the Singapore Allowance in April 1974. This ex-gratia allowance is an additional payment over and above the pensions that the Government pays to pensioners residing in Singapore.

The Singapore Allowance was last revised in August 1997, when the quantum was increased by $10, from $130 to $140 per month, and the gross pension ceiling raised from $900 to $950.

The government has decided to increase the Singapore Allowance further by $10 to $150 per month, and raise the gross pension ceiling from the current $950 to $1,050 per month. The revision will give an additional $1.7 million a year to pensioners residing in Singapore, of which there are about 12,100. The change will take effect from 1st April 2001.

Encouraging Philanthropy - Tax Deduction for Shares Donation

While the Government is taking the lead in ensuring that the fruits of success are shared with the less fortunate in society, we hope that Singaporeans who are better off will choose to give more back to society by way of time, expertise and donation.

In addition to current tax deductibility for donations to qualifying institutions, I have decided to make the donation of shares tax deductible also. This opens up another avenue for charitable donations, and is a recognition of the fact that a rising number of companies are using shares as a form of remuneration for their employees.

As a start, tax deductions will be granted to individuals who donate to Institutions of a Public Character (IPCs) shares which are listed on the SGX and unit trusts readily tradable in Singapore. The concession will apply to donations made from January 2001. Transfers

$1 billion is being proposed for the second payment of the CPF Top-up of $500 to $1,700 announced by the Prime Minister in August last year. In addition, the Government is proposing to contribute another $500 million to the Lifelong Learning Endowment Fund, bringing the total to $1 billion.

The ElderCare Fund was set up to help lower-income and lower-middle income households with the cost of nursing home care, while the Medical Endowment Fund helps lower-income individuals with their medical bills so as to ensure that no one will be left without access to medical care because they cannot afford it.

To further build up the ElderCare Fund and the Medical Endowment Fund, the Government will contribute $250 million to the ElderCare Fund (bringing the total to $750 million) and $100 million to the Medical Endowment Fund (bringing the total to $800 million) in FY2001. MISCELLANEOUS TAX CHANGES Duties on Cigarettes

As part of our continuing national effort to discourage smoking, especially among our youth, the excise duty on cigarettes will be increased from $150 to $180 per kilogram. Duties on cigarettes were last revised in February 2000. The change will take effect from today. The estimated revenue gain is $102 million per year. CONCLUSION

The objective of Budget 2001 at the macro level is to position Singapore for the challenges of the global economy in the new millennium.

The cuts in the corporate and property tax rates, the new corporate tax structure, and the exemption of withholding tax on software payments - these will all lower business costs, and help us maintain our international competitiveness as a business location.

However, as the global economy becomes more knowledge-based, to maintain competitiveness, it is no longer sufficient for us to just cut costs, or wring the last bit of efficiency out of existing systems. Innovations and new ideas will play an increasingly important role in creating wealth for companies in Singapore, and consequently, for Singapore as a nation.

This is why we are encouraging productivity and entrepreneurship, through the new corporate tax structure favouring small enterprises and start-ups, a more favourable treatment towards stock options for employees of all companies and not just start-ups, and raising the tax exemption limits on voluntary CPF contributions by the self-employed.

At the same time, we will help our companies to move up the value chain and into growing industries by our $868 million spending in R&D and the Economic Development Assistance Scheme, and give assistance to local enterprises as they adapt to changing market conditions.

Though businesses are important, even more important are the people. This is why we are investing nearly $7 billion in the education of our children and continuous training of our people, through our investment in educational institutions, the Manpower Development Assistance Scheme, and the Lifelong Learning Endowment Fund, among many other ways.

At the same time, the Government will continue to create the conditions to attract and retain talented Singaporeans and foreigners to live in and contribute to Singapore.

The objective of this year's budget at a micro level is, as I mentioned earlier, to help everyone in Singapore make a successful transition into the knowledge-based economy. Education and re-training are key. Adjustment takes time and effort. The lowly skilled are in greatest danger of losing their jobs. The lower-paid need the most help, but most of all they must want to help themselves. The Government can lend a helping hand in the process. We are therefore implementing a slew of measures to ease the financial burden on individuals, and share the economic surplus that we enjoyed in year 2000.

We are cutting individual income tax rates significantly, giving a one-off 10% tax rebate on individual income tax, continuing with rebates on S&C charges and rents, and helping HDB households through the Utilities Save scheme. This package of measures has been intentionally designed to be progressive, to benefit the less well-off more.

While we focus on enabling the economically active to adapt better in the new millennium, we do not want to forget the others. This is the reason for allowing the tax deduction of shares donation to IPCs to encourage philanthropy, as well as the Government's contribution of $250 million to the ElderCare Fund and $100 million to the Medical Endowment Fund.

There is a place for everyone in Singapore, and everyone will benefit from good governance. It will take effort and even a fair amount of difficulty to reach where we, as a nation, want to get to. This Budget serves to encourage everyone to stay united and succeed together. [Applause].

Mr Speaker: The Question is, "That this Parliament approves the financial policy of the Government for the financial year 1st April, 2001 to 31st March, 2002." In accordance with paragraph (1) of Standing Order No. 86, the debate now stands adjourned.

Debate to be resumed on what day, Dr Hu?

Dr Richard Hu Tsu Tau: Monday, 5th March, 2001, Sir.

Mr Speaker: So be it.