PART IV: TAX AND FEE CHANGES

Mr Speaker, Sir, these tax and policy changes are the Government's response to the main recommendations of the ERC. The report contains other suggestions, which the Ministries will follow up expeditiously. Some of the ERC's ideas require more study. The Government will examine these ideas carefully to find the best ways to implement them.

In addition to the ERC-related measures, I am making several other tax and fee changes.

Liquor Duties

To rationalise our liquor taxes, we will adjust selected liquor duty rates. Excise duties will be raised for some types of liquors, and reduced for other types in order to rationalise the duties and bring them in line with our international obligations. The new rates are at Annex G (Cols. 135-136). The changes will take effect today and result in a revenue gain of about $9.4 million every year. ANNEX G - CURRENT AND NEW EXCISE DUTIES FOR LIQUORS (Cols. 135-136)

Tobacco Duties

Although the proportion of smokers in Singapore dropped from 18% in 1992 to 14% in 2001, the percentage of young female smokers aged 18 to 24 increased from 2.8% to 8.2% in the same period. To discourage smoking, and especially to deter the young from picking up the habit, the Government will take every opportunity to raise excise duties on cigarettes and other tobacco products.

Last year, I raised the excise duty on cigarettes from $180 per kg to $210 per kg. I have decided to further increase the excise duties on all tobacco products with effect from today. Excise duty on cigarettes will go up from $210 per kg to $255 per kg. The new excise duties on other tobacco products are at Annex H (Cols. 137-140). ANNEX H - CURRENT AND NEW EXCISE DUTIES FOR TOBACCO PRODUCTS (Cols. 137-140)

The Government has also noticed the emergence of low-priced cigarettes with slightly lower tobacco content. The low prices make such cigarettes more accessible to our youths. I have therefore decided to tax cigarettes by sticks, instead of by weight so that these cigarettes are subject to the same duty rates as regular packs of cigarettes. Under this new system of taxation, the excise duty on each stick of cigarette less than 1g will be 25.5 cents, and each additional 1g or part thereof will attract a duty of 25.5 cents. So there is no point having an extra long cigarette. To give traders and cigarette companies time to adjust their systems, this new system of taxation will be implemented from 1st July 2003.

The annual revenue gain from these changes is about $194 million.

Travellers can currently bring in tobacco products not exceeding 2 kg without a permit, by paying duty on them. This is equivalent to 100 twenty-stick packs of cigarettes. Some people have found that paying duty on cigarettes bought overseas is still cheaper than buying cigarettes here. I have decided to lower the limit to 400g, which is equivalent to 20 packs of cigarettes. This will take effect from 1st April 2003.

Motor Vehicle Taxes

Valuation Method

The Government will change the basis for valuing motor vehicles. We will change from the Brussels Definition of Value (BDV) method to the Customs Valuation Code (CVC) method. This new basis will exclude obligatory expenses such as advertising, promotion, warranties, showroom and warehousing costs from a vehicle's taxable value. The effect will be to decrease the ARF and excise duty payable for most vehicles by 3% to 5%.

This is consistent with our policy of gradually lowering the costs of owning a car and raising usage costs, in order to strike a better balance, and enable more Singaporeans to own cars. For a typical 1,500 cc car with an assessed open market value or OMV of $15,000 under the existing valuation system, a 5% tax saving would amount to about $1,100. This change will take effect from 1st April 2003. Details about the valuation method can be found in Annex I (Cols. 139-140). ANNEX I - VALUATION OF MOTOR VEHICLES (Cols. 141-142)

ARF and Excise Duty Rebates for Wheelchair Lifts

To help the elderly and disabled meet their transport needs, I have decided to exclude the cost of wheelchair lifts and other costs associated with the installation of such lifts from the OMV of a vehicle when computing the ARF and excise duty payable. This change will take effect immediately, and will complement other efforts by National Council of Social Services and voluntary welfare organisations to provide transport services for this group of needy Singaporeans.

Childcare Benefits

Many parents find it difficult to juggle both work and childcare, and one parent may have to stop working as a result. Childcare benefits defray the cost of alternative care arrangements for their children and encourage them to stay in the workforce. I have therefore decided to exempt from income tax employer-subsidised childcare benefits paid to licensed childcare centres with effect from YA 2004. This is in line with the Government's efforts to promote pro-family practices in the workplace.

Stamp Duties

Stamp Duty on Leases

Presently, all property leases are levied with stamp duty. To reduce the tax burden on families living in rental flats, and the inconvenience to businesses and the general public, I have decided to exempt from stamp duty leases with annual rents that do not exceed $1,000. This change will benefit some 3,500 households that start a new lease or renew the lease of a 1- and 2-room HDB rental flats each year. The exemption will also cover the fixed duty levied on 99-year leases that some 32,000 households enter into each year when they purchase flats from HDB. About 30% of all leases will now be exempted. Households and businesses can expect to save about $340,000 a year from 1st April 2003 onwards.

Seller's Stamp Duty

The seller's stamp duty on the sale of residential properties within three years of purchase was introduced in 1996 to curb property speculation and to stabilise the property market. It was suspended indefinitely in November 1997 when the property market cooled down. Since the property market is stable, there is no longer any need to retain the seller's stamp duty. I have therefore decided to abolish this duty.

Promoting Philanthropy

Our tax system recognises taxpayers who support charitable causes.

Donation of Land and Buildings

From 1st April 2003 onwards, I will be giving income tax deductions for donations of buildings and parcels of land made to Institutions of a Public Character (IPCs). Donors will have the flexibility to decide if they would rather donate the sales proceeds of the asset, or the asset itself, as both options will now allow them an equivalent amount of tax deduction.

Stamp Duty on Donations

At present, IPCs have to pay stamp duties when they receive donations of immovable properties and shares. To lessen the burden on IPCs receiving such donations and to encourage bequests and donations from estates to IPCs, I have decided to exempt all donations to IPCs from stamp duty. This will take effect immediately.

Donation of Public Sculptures

As we develop our economy, we should not neglect to preserve our cultural heritage. I am introducing three enhancements to the Public Sculpture Donation Scheme, with effect from 1st July 2003. The enhanced scheme will incentivise donors to adopt existing sculptures, commission and donate sculptures or publicly display sculptures from their private collections. The National Heritage Board will be releasing the details of this scheme by 1st July 2003.

Overall FY 2003 Fiscal Position

Mr Speaker, Sir, the tax changes in response to ERC measures, taken together with the rebates and other tax and fee changes, will cost the Government $324 million in FY 2003. This will increase the deficit from the $900million projected in the FY 2003 Budget to $1.2 billion. The Government is able to finance this deficit from funds accumulated in its current term and will not need to draw on past reserves.