4.1 We are competing in a league of both established leaders
and newly-emerging cities with an edge in knowledge-based
industries. They are not standing still, even in the developed
4.2 Munich in Germany, previously dependent on the automobile
industry, is now a high-tech, knowledge-based city. Today,
Munich is home to not only leading biotechnology research
centres like the Max Planck Institute of Biochemistry and
corporate giants such as BMW and Siemens, but also vibrant
SMEs with world-beating technologies. Last year, Munich was
also cited in the International Herald Tribune as the most
liveable city in the world.
4.3 In the US, the city of Austin in Texas is fast establishing
itself as a centre of innovation for clean technology. It
was recently named by Moody’s as the best place for
business in the US. Austin had the third-highest number of
patents among US cities in 2005, and over 44% of the population
hold a college degree.
4.4 Asian cities, including even lower-cost cities, are joining
in the high-value game. Hyderabad, now dubbed the second Silicon
Valley in India after Bangalore, has invested heavily in education,
research and digital infrastructure. It is home to Satyam,
a leading IT company, and has attracted large global investors
such as Microsoft, IBM and Novartis. In China, besides Beijing
and Shanghai, second- and third-tier cities like Hangzhou,
Qingdao and Yantai are emerging as centres for highly competitive
clusters of innovative enterprises.
4.5 Kyoto in Japan has also emerged over the last decade
as a major hub for innovation, home not only to leading global
companies that started out there, like Murata, Kyocera, and
Nintendo, but also a large number of small, dynamic firms
often with world-leading technologies. Kyoto has one of the
highest concentrations of high-tech start-ups in Japan. It
also hosts top-notch academic institutions like Kyoto University,
which has produced five of Japan's nine Nobel prizes in science,
and an assortment of incubator facilities. And all this happening
in a city endowed with centuries-old traditions, beautiful
temples and gardens.
4.6 We have what it takes to compete in the top league.
4.7 We already have a first-class infrastructure and one
of the most attractive living environments in Asia. But we
will invest in a total upgrade of our business, transport
and IT infrastructure to enable new growth in the decades
to come. The development of Marina Bay will eventually double
the size of our financial district. Minister Raymond Lim has
set out our plans to ensure that our roads are free-flowing,
and to make a quantum leap in our public transport infrastructure.
We will double our rail network by 2020. Our expenditure on
land transport alone from now till 2020 will add up to $50
billion or about $4 billion a year – which is about
two and a half times what we have spent on all transport infrastructure
– land, air and sea - over the last 20 years.
4.8 We have also embarked on a transformation of our HDB
heartlands that will take place over the next 20 to 30 years,
beginning with the rejuvenation of our older estates and the
building of new generation public housing in estates like
Punggol and Dawson. Together with the ongoing upgrading programmes
in all our estates, and the green corridors and waterways
that we are now developing all over the island, we will provide
a vibrant and distinctive living environment for our people.
4.9 These large investments will position Singapore for its
next phase of development as a global city, open up many new
opportunities for growth, and help transform the quality of
life for all Singaporeans.
4.10 However, our infrastructure is only the enabler. The
key to our success will be our people and our enterprises.
Whether we make the most of our opportunities, whether we
grow, and whether we hold our place in the top league will
ultimately depend on whether our people and enterprises are
top quality, in every job and business they do.
Nurturing Every Skill and Talent
4.11 At all levels of our education system, we are investing
more and moving up in quality.
4.12 We will commit more resources to achieve higher standards
in the pre-school sector, which will especially benefit children
from lower-income backgrounds. We will also enhance our financial
assistance schemes, KiFAS (Kindergarten Financial Assistance
Scheme) and CFAC (Centre-based Financial Assistance scheme
for Childcare), to help more families with their children’s
fees in kindergartens and childcare centres. More details
of these initiatives will be announced by MOE and MCYS later.
4.13 We will continue to invest in higher quality education
in every school. We are paying our teachers competitively
to ensure that we keep good and dedicated people, and have
improved the pupil-teacher ratio in every school to enhance
the learning experience for all our pupils. Indoor sports
halls will be coming to all our schools. We are also putting
more resources into overseas immersion for a broad base of
students and new boarding school programmes that will enhance
opportunities for bonding and a rigorous all-round education.
4.14 Our university sector is entering a new phase.
4.15 NUS, NTU and SMU (National University of Singapore,
Nanyang Technological University and Singapore Management
University) are stepping up to a new level of excellence that
will put them decisively ahead. We will grow the number of
subsidised university places from 25% to 30% of each cohort
by 2015, with four publicly-funded universities. Government
spending on the universities will increase by one-quarter,
or $500 million annually. Besides the four universities, we
will have a range of other programmes that will enable students
to earn degrees in specialised fields, like early childhood
education and naval architecture. We will stand out, even
among developed countries, in the way we provide a top quality
range of publicly-subsidised university options to a sizeable
proportion of Singaporeans to aspire toward and take advantage
4.16 Our young Singaporeans are taking advantage of this
and they keep surprising the world with what they are capable
of. Last year, a team of first-year students from the NUS
won an award given to the top ten teams in the Mondialogo
Engineering Competition – the largest competition for
young engineers with ideas that can change the world, organised
by Daimler-Chrysler and UNESCO. They were up against 800 teams,
including many with PhD students. Their project focused on
how solar processing can be used to help farmers preserve
fruit so as to raise their incomes. These were first-year
students from NUS – three Singaporeans and two Malaysians
who had done JC (junior college) education in Singapore. They
made up for the fact that they were only in their first year,
by doing their own research, and teamed up with two senior
undergraduate students from the Mumbai University Institute
of Chemical Technology – using the connections between
faculty of the two universities.
4.17 We will also provide enhanced assistance to needy students
to make sure that financial status remains no obstacle to
pursuing studies at our publicly-funded universities.
4.18 Our universities must be able to charge realistic and
sustainable fees, so that they can recruit good faculty, improve
their faculty-student ratios over time and provide a top quality
education. This is the only way we can build a world-class
university system for Singaporeans.
4.19 The Government provides very significant subsidies for
university education, at 75% of costs. Students also have
easy access to loans to fund a large part of their fees. This
system is fair, since university graduates can expect to earn
a significant premium in the employment market and can afford
to pay back their loans gradually after they start work.
4.20 However, taking into account the higher costs of university
education today, with the improvements in quality that we
are making, we have decided to significantly enhance the bursaries
given to students from the lower-income group. We will also
provide more assistance to those in the middle-income brackets.
This will ensure that no student needs to face an excessive
burden of loans at the start of his working life. Further,
through a combination of bursaries and loans, students within
the bottom two-thirds of the population will not need to expend
cash for either their fees or living expenses during their
4.21 First, for students in the lowest 20% of households
who enter our universities, we will increase the CDC/CCC (Community
Development Council/Citizens’ Consultative Committee)-University
Bursary Scheme for students, from $1,000 to $1,600 per annum.
The universities will themselves also provide further bursaries
to low-income students in need.
4.22 Second, for the middle-income group, the MOE Bursary
Scheme for students up to the 50th percentile of
households will be increased from $800 to $1,200 per annum.
Further, we will extend the bursaries to students above the
50th percentile but within the lower two-thirds
of households by income, who will receive a lower amount of
$800. To provide greater access to credit for students in
middle-income households, the Study Loan Scheme will be extended
to students up to the 80th percentile of households (Chart
Chart 1 – Quantum of bursaries for university undergraduates
4.23 We will similarly increase the bursary quantums for
polytechnic students. For the CDC/CCC-Polytechnic Bursary
Scheme, we will increase it from $1,000 to $1,200 per annum.
We will also be introducing a new MOE Bursary Scheme for polytechnic
students from the bottom 50% of households, as we have done
at the universities. The new bursary will be set at $800 per
annum. We will also extend the MOE and CDC bursaries to students
enrolled in MOE-funded diploma programmes in the arts institutions
– LaSalle and Nanyang Academy of Fine Arts. Similar
to the study loans for university students, the Study Loan
Scheme for diploma students will be extended to students up
to the 80th percentile of households (Chart
Chart 2 – Quantum of bursaries for polytechnic students
4.24 All new and existing students can take advantage of
these schemes starting from this coming academic year.
4.25 Last year we introduced Post-Secondary Education Accounts
(PSEAs) for all students. I announced a top-up of $100 to
$400 for each of 2008 and 2009. I had also said that we would
top up students’ accounts from time to time when our
surpluses allow. Given the good surplus that we had last year,
I will now make a further top-up later this year. We will
provide the majority of students, which includes those from
all HDB homes, $300 for those still in primary school and
$600 for those in secondary school. Including what was announced
previously, this means that secondary school students would
have up to $1,400 in their accounts by March next year to
use for their post-secondary education. The additional top-up
this year will cost us $300 million (Table 1, Chart 3).
Table 1 - Structure of New PSEA Top-ups
Chart 3 – Total sum in PSEA by March 2009 from the
top-ups in 2008 and 2009
4.26 Details on financial assistance schemes for post-secondary
education are at Annex
and Training (CET)
4.27 From kindergarten up to university, we are investing
more and enhancing financial support for students. However,
a key focus going forward will now be continuous education
for adults. This is going to be absolutely essential for us
to retain the competitiveness of our workforce, in a world
where we are competing on skills, quality and productivity,
and not on costs alone.
4.28 Two weeks ago, PM launched the National CET Masterplan,
which sets out our strategy to invest in our people over the
next ten years. We expect to spend, on recurrent expenditure
alone, $400 million per year on CET by 2010. To support this
long term engagement, I will top-up the Lifelong Learning
Endowment Fund (LLEF) by $800 million this year, bringing
it to $3.0 billion.
4.29 As the Government ramps up its spending on CET, employers
will remain key players in the training of workers. Currently,
they contribute a Skills Development Levy (SDL) on workers
earning $2,000 and below. As we move to provide CET to workers
across all levels, we should broaden the base for the SDL.
Employers will now contribute the SDL on all workers
they employ, up to the first $4,500 of gross remuneration.
The wider base will allow us to reduce the levy rate from
1% currently to 0.25%. This will be broadly neutral in terms
of levy collections, but will reduce the overall burden on
smaller companies and employers of lower-wage workers. The
change will take effect from 1 October 2008.
4.30 We will also help Singaporeans who take the initiative
to upgrade themselves, by extending subsidies beyond vocational
CET. Currently we do not subsidise part time degree programmes.
We will now provide subsidies for part-time degree programs
at the three publicly-funded universities and UniSIM for those
who have not previously benefited from a government-subsidised
undergraduate education. Singapore citizens will be able to
pay subsidised fees, with the Government meeting 40% of the
cost of these programmes.
4.31 We will also make further refinements to the existing
tax relief for course fees to help individuals claim the relief
more easily when they take up academic, professional or vocational
courses. Details on these refinements are at Annex
Making Innovation Pervasive
4.32 We must make innovation pervasive in our economy.
4.33 Singapore is already host to a good share of global
companies, the HPs, Novartises and Mitsuis of the world. They
are moving their activities up the value chain and increasingly
investing in R&D in Singapore. We now also have a few
home grown companies like Venture Corp, which has some 600
R&D engineers worldwide, and about half of them in Singapore.
Our strategy is to spread innovation across the corporate
sector, enhance incentives for enterprises small and big to
do R&D and push for greater commercialisation of research
generated in our institutions of higher learning.
World Class R&D Capabilities
4.34 We will increase our overall research spending to $7.5
billion per annum by 2010, or 3% of the GDP, with one-third
of this being publicly funded research. Through the National
Research Foundation (NRF), A*STAR and our academic institutions,
we are developing deep capabilities in research fields which
have a clear value proposition for Singapore. This year, I
will top up the National Research Fund by $800 million, bringing
it to a total of $1.8 billion.
4.35 Top international scientists are coming here because
they see Singapore as a place where high impact research can
be done. But we are also attracting and nurturing young, up-and-coming
researchers. Just two weeks ago, the NRF awarded research
fellowships to ten outstanding young researchers from eight
different countries to conduct cutting edge research in Singapore.
Four of them had studied in Singapore or have been teaching
at our universities. One of them was Dr. Yeo Yee Chia, who
at age 36, has been granted some 150 patents. The NRF fellowship
will allow Dr. Yeo to lead research efforts on advanced transistor
technology, an area that could create new advantages for Singapore’s
Commercialisation of Research
4.36 Having the facilities and talent for top-class research
is not enough, however. As our research entities develop our
R&D capabilities, we will also do more to create value
out of R&D so that we benefit our enterprises and our
economy over the long term. We will facilitate incubation
of early-stage ideas that are developed in our universities
and research institutions, and partner with venture capital
funds to help the institutions spin off companies.
4.37 Polytechnics and ITEs too will be encouraged to commercialise
their innovations. MOE has established an Innovation Fund
of $10 million to help seed their ideas and products, and
to bring their innovations to the point that could attract
4.38 The push to create knowledge in our universities and
polytechnics and to find ways to commercialise it will over
time benefit many enterprises, and in many ways. We already
have several examples, including in traditional industries.
Like Lee Hwa Jewellery, a company founded over 30 years ago
by Mdm Tan Su Lan. Lee Hwa created something entirely new
- purple gold jewellery. Not many people know this, but purple
gold has something to do with Singapore Polytechnic. The technology
was first developed by Dr Loh Peng Chum, who was then at Singapore
Polytechnic. He took it to Lee Hwa, which then spent a few
million dollars to perfect the technology. Purple gold is
now sold in several cities around the world, from London and
Dubai, to Tokyo and Seoul.
Enterprise and Innovation
4.39 We will help all our companies move up the innovation
ladder. Last year’s Budget enhanced our tax competitiveness
for all businesses. We made Singapore one of the lowest tax
locations in the world to start and grow an enterprise. In
this year’s Budget, we will make Singapore one of the
most competitive places for companies, big and small, to do
4.40 Firstly, I will increase the tax deductions allowed
for R&D done in Singapore from 100% to 150%. This enhanced
deduction means that for every $100,000 of local R&D spending,
a company will be able to deduct $150,000 from its taxable
income. I will also lift the requirement that the R&D
done in Singapore must be related to a company’s existing
business, so as to allow it to qualify for the deduction even
if it is doing research in new areas unrelated to its current
4.41 Secondly, I will introduce a new broad-based tax allowance
which will provide a further push for innovation amongst companies
in Singapore, and especially the SMEs. Companies will be granted
R&D tax allowances each year, up to an amount of 50% of
the first $300,000 of their chargeable income. This allowance
can be used to defray incremental expenditure on R&D done
in Singapore in subsequent years. This will provide additional
resources for SMEs to invest in innovation, whatever their
field of business. It is extra funds that they will lose if
they do not use them for R&D.
4.42 Thirdly, I will also introduce an incentive to help
our high-tech start-ups. Turning R&D into marketable products
usually takes time, during which the new company may have
no taxable income. Currently, they carry forward their losses
for tax purposes. The new incentive, called R&D Incentive
for Start-Up Enterprises (or RISE), will allow them to convert
immediately these losses into a cash grant of up to about
$20,000. They will get this as long as they incur at least
$150,000 in expenditure during the year for doing R&D
in Singapore. This scheme will be available for enterprises
in their first three years of assessment. As with the other
incentives I have mentioned, we will review the scheme after
4.43 The three schemes will provide a significant incentive
for all companies, small and big, to do R&D. Start-ups
which have not yet turned a profit, will benefit from reduced
costs when they do R&D. A small company that is
around the 80th percentile of taxpaying companies, and which
spends an additional $150,000 on R&D, would find its effective
tax rate being reduced from around 9% currently, to almost
zero. For a medium-sized company, around the 90th percentile
of our tax-paying companies, its effective tax rate will come
down from about 15% to 10%. The three schemes together will
cost about $250 million a year.
4.44 Details of these R&D initiatives are at Annex
Innovation in Public Services
4.45 The public sector itself will be more active in innovation.
A new Public Service Innovation Framework will serve to promote
public-private collaborations that will bring about breakthrough
4.46 The Government will set aside $90 million over three
years as a seed fund for experimentation, test-bedding and
building capabilities. Each Ministry will have a Chief Innovation
Officer to drive and coordinate this process. The Public Service
is always looking for solutions to problems, big and small,
that innovative enterprises could participate in. Private
companies with new ideas for technologies and services can
offer them for joint development prior to the procurement
4.47 Some examples are well known, like how our companies
have taken advantage of NEWater and TradeXchange to develop
whole new capabilities, grow and expand overseas. There are
other lesser known examples. One of them is Cadi Scientific,
founded by four Singaporeans just five years ago. They approached
Singapore General Hospital with a prototype device and offered
to work together with the hospital to develop a thermal sensor
that could automatically transmit body temperature readings
wirelessly to a central system. It freed up time for the nurses,
and also meant that patients need not be disturbed from their
4.48 Today, their device has been developed further, into
a system that measures many vital signs – blood pressure,
respiratory rate and so on – known as SmartSense. SmartSense
has been adopted by Tan Tock Seng Hospital, and is now being
trialled in hospitals in Thailand and Taiwan.
4.49 We are stepping up our focus on R&D and innovation
on all fronts, through our universities and public sector
institutions, by incentivising R&D in our enterprises
including SMEs and start-ups, and through closer interaction
between the public sector and private enterprises. We cannot
expect quick results from the investments we are making today
and the incentives we are providing. We may have to do more
in future years. But what we do now to make innovation more
pervasive in the economy, and to grow new enterprises that
are driven by R&D, will eventually pay off.
Enhancing Business Competitiveness
4.50 We have to keep our business costs competitive, and
not let them run ahead of the cities we are competing with.
Office Space Constraints
4.51 In the short term, we face tightness in office space
capacity, caused by the surge in business growth, especially
in the business and financial sector. Office rentals have
risen sharply. Although office space still costs 30% to 50%
less in Singapore on average, compared to Hong Kong and Tokyo,
the pace of cost increases has been rapid and unsettling for
4.52 The tightness in office space should ease over the medium
term, with the completion of major projects currently under
construction, such as Phases 1 and 2 of the Marina Bay Financial
Centre, the Marina View sites and South Beach. By 2012, we
will have an additional 1.4 million sqm of office space.
4.53 But we are addressing the short term problem. The Government
has released 15 transitional office sites and vacant state
properties, which will yield 150,000 sqm of additional office
space. Companies are already relocating to some of these sites,
and to our new regional centres.
4.54 Further, the Government has decided to relocate several
agencies out of the Central Area. We will now free up 20,000
sqm or more by the first quarter of 2009 for use by the private
sector. This is equivalent to twenty floors or more of an
Office Tower Block in Suntec City.
4.55 Construction costs are another short term problem.
The combination of higher raw material prices and work on
major new projects such as the two integrated resorts and
petrochemical complexes has caused costs to spike up. To ease
the pressure, the Government has earlier announced the deferment
of some $2 billion worth of Government projects. We have now
decided to defer another close to $1 billion of projects.
This deferment will only affect projects which are less urgent.
Key investments such as the expressways, the Downtown Line
and the NUS University Town will not be affected.
4.56 We will continue to keep our taxes competitive so as
to provide every incentive for work and enterprise, and generate
economic growth for the future.
4.57 With our 18% corporate tax rate – we brought it
down last year by two percentage points – and the enhancements
we have made to our Partial Tax Exemption scheme last year,
our corporate tax regime is competitive. The R&D incentives
I have announced will provide further reductions in effective
tax rates for companies over time. I will make additional
refinements this year to give a further boost to entrepreneurial
companies and SMEs.
Start-Up Tax Exemption Scheme
4.58 First, I will liberalise our start-up tax exemption
scheme. Currently, all shareholders must be individuals before
the company is eligible for the scheme. This is too restrictive.
I will therefore allow the tax exemption for start-ups as
long as there is at least one individual shareholder with
at least a 10% shareholding.
Equity Remuneration Incentive Scheme
4.59 Many companies are seeking to use equity-based remuneration
to attract and retain talent. Several years after the dotcom
bubble, equity in the form of stock options or share awards
remains a relevant tool for young and fast-growing companies.
4.60 There are currently two tiers of tax incentives for
equity-based remuneration – one for employees of SMEs
and another for those in larger companies. Some of our larger
companies would like to use equity remuneration for key employees
to encourage them to take risks and grow the company. However,
they are currently restricted from doing so as the existing
incentive requires them to offer share awards or stock options
to at least 50% of their employees. So it has not been
very practical for companies, especially our large companies.
I have decided to adjust this condition so that they are only
required to issue stock options or shares awards to at
least 25% of the company’s employees.
4.61 I will also introduce a new and more attractive tier
for start-up companies besides the two current tiers targeted
at SMEs and larger companies. As the risks involved in start-ups
are naturally higher, it is reasonable to grant their employees
a larger exemption from personal income tax on the gains they
make on their stock options or share awards.
Fixtures and Fittings Incentive
4.62 A regular bugbear concerns the expenses that companies
incur on fixtures, fittings and installations in their premises.
Some renovation expenses are currently not eligible for capital
allowances. Typically, if the fixture or furniture is movable,
it qualifies; if it is not movable or does not look movable,
it does not qualify. For example, if a restaurant wants its
bar counter to qualify for capital allowances, the surest
way is to put it on wheels. I have decided to introduce a
new incentive to help businesses, and especially SMEs, keep
their costs down. Businesses will be granted a special allowance
for the costs of fixtures, fittings and installations incurred,
to be written down over three years. The allowance will be
limited to expenses of $150,000 every three years. This new
allowance will be particularly helpful for SMEs in the services
industries. Whether it is a fashion or F&B outlet, the
upgrading they make to the interior design of their premises
is integral to the experience they offer to their customers.
So we should allow this to be deductible. Overall, this measure
will save our businesses about $130 million a year in tax.
The cap at $150,000 of expenses is essential because, if we
allowed all businesses to deduct all expenses involved in
renovating their premises, we would face significant revenue
Promoting New Financial Activities
4.63 Singapore’s financial centre has seen good growth
and has significant new opportunities ahead, particularly
in Asian markets. Islamic finance is a promising area and
we will ensure that Singapore’s financial markets are
conducive for its growth. To encourage more Shariah-compliant
financial activities to be done out of Singapore, I will introduce
a 5% concessionary tax rate for income derived from qualifying
Shariah-compliant activities, specifically in the areas of
lending, fund management, insurance and reinsurance. I will
also extend the tax exemption currently granted to non-residents
and resident individuals on income from Qualifying Debt Securities
to all investors of qualifying sukuks (Islamic bonds),
including resident non-individual investors.
4.64 To strengthen Singapore as a wealth management hub,
I will introduce a tax incentive scheme for family-owned investment
holding companies. The scheme will allow these companies to
enjoy the same scope of exemptions that individuals currently
enjoy on Singapore and foreign-sourced investment income.
4.65 To further develop Singapore as a premier insurance
centre, I will introduce a tax incentive scheme for licensed
insurance and reinsurance brokers. They will be taxed at a
concessionary rate of 10% on the income they derive from offering
insurance broking and advisory services to offshore clients.
4.66 I will also enhance other financial sector tax incentives
comprising those related to project finance, Qualifying Debt
Securities and asset securitisation transactions, as well
as extend the Financial Sector Incentive scheme for another
Developing the Maritime Hub
4.67 To deepen our maritime financing capabilities and to
tap on new business opportunities created by the buoyant shipping
market, I have decided to provide a concessionary tax rate
of 5% or 10% on income from leasing of containers under the
Maritime Finance Incentive. I will also allow partners to
enjoy the incentive.
Tax Credit for Foreign-Sourced Income
4.68 We will also make other specific tax changes. To eliminate
the possibility of double taxation for our companies that
venture abroad, I will extend unilateral tax credit to all
foreign-sourced income that they earn in countries with which
Singapore does not yet have an Avoidance of Double Taxation
Overseas Talent Recruitment Scheme and Not-Ordinarily-Resident
4.69 To help businesses continue to attract talent from around
the world, I will extend the Further Tax Deduction scheme,
which allows for further tax deduction for relocation and
recruitment expenses for another five years till 2013. I will
also refine the Not-Ordinarily-Resident scheme, which is relevant
to individuals with regional work responsibilities, so that
it covers not only salary but also benefits in kind.
4.70 Details on these tax changes are at Annex
4.71 I mentioned last year that we would review estate duty,
and we have done so. We collect about $75 million per year
on average from estate duty.
4.72 We inherited estate duty from the British. The rates
we originally had were high –until 1984, the top rate
was 60%. (Today’s inheritance tax in the UK is in fact
still 40%.) Our current rates are much lower; 5% for the first
$12 million of dutiable assets and 10% thereafter.
4.73 Estate duty is a means to rebalance opportunities with
each new generation and prevent wealth from being concentrated
in fewer and fewer hands over time. It was especially relevant
at the time when the bulk of wealth comprised land that was
passed down through the family. Today, however, wealth is
being created in many more ways and by a wider group of entrepreneurs,
many of whom start off with little.
4.74 Wealth is also being managed today on a global basis.
Proponents of removing estate duty have therefore argued that
removing it would encourage wealthy individuals from all over
Asia to bring their assets into Singapore, thus supporting
the growth of the wealth management industry. Ordinary Singaporeans
have also argued that having worked, paid taxes on their income
and property, and built up their savings, they want to be
able to pass it on to their families. Some are in fact liable
for estate duty when their estates receive large life insurance
4.75 The current low exemption limit for non-residential
assets, set at $600,000, compared to the higher limit of $9
million for residential properties, in fact tends to affect
our middle and upper-middle-income estates disproportionately
compared to wealthier ones. We have considered raising the
$600,000 limit for non-residential assets so as to correct
for this. However, this would further shrink what is already
a narrow tax base and render the tax less effective.
4.76 I have therefore decided to remove estate duty from
our tax regime, with effect from deaths from today. It is
not just a practical or expedient measure, but one that on
balance will be in our collective interest. If we make Singapore
an attractive place for wealth to be invested and built up,
whether by Singaporeans or foreigners who bring their assets
here, it will benefit our whole economy and society, not just
the individuals who build up their wealth. It is not a zero
4.77 I would however encourage individuals who have accumulated
wealth to think of how they can use it to make a contribution
to society, and make full use of the enhanced incentives we
introduced last year to promote philanthropy. This will benefit
our schools, universities and hospitals, and the growing range
of charitable causes in Singapore.
4.78 With the removal of estate duty, our remaining tax on
wealth would be the tax on property. We should retain this
tax. It is an efficient tax, set at a low rate in relation
to the full value of the property, especially for owner-occupied
homes. You cannot tax-plan it away. It also does not affect
our middle and upper-middle-income estates disproportionately
compared to wealthier ones. This is why most countries have
some form of tax on property – including even Hong Kong,
which like us does not have capital gains tax and has already
done away with estate duty. Only Ireland does not have a tax
on residential property, but the Irish have capital gains
tax, inheritance tax and gift tax.
4.79 Details on estate duty are at Annex
Personal Income Tax
4.80 For most taxpayers, Singapore’s personal income
tax regime is already one of the most competitive in the world,
because our marginal tax rate schedule is highly progressive.
We will not be making any further move on personal income
tax rates this year. But we will continue to watch this and
ensure that we are always able to attract and keep talent
in Singapore, including those at the top end. After we amend
the Constitution to revise the framework for drawing investment
income from our reserves, we will reassess our options on
corporate and personal income tax and lower rates further
should it become necessary.
4.81 As the Government had a strong surplus last year, however,
we will give something back to taxpayers this year. I will
give an income tax rebate of 20% for all resident taxpayers
for Year of Assessment 2008. The rebate will be capped at
$2,000. Having this cap allows us to target the rebate at
those below the top income brackets. The income tax rebates
will cost the Government $380 million.
Miscellaneous Tax Changes
4.82 Last year, I announced that we would progressively move
towards taxing liquors on the basis of alcoholic content,
rather than on the basis of volume. We are now already taxing
many liquors, including beer and stout, on the basis of their
alcoholic strength. However, other liquors like wine, whisky,
and brandy are still taxed based on volume. With effect from
today, all alcoholic beverages will be taxed on the basis
of their alcoholic content. Most liquors will see a slight
reduction in duty rates. The rationalisation of the duty rates
will be broadly revenue neutral.
4.83 Having covered liquor, I now move to driving. The Government
has already announced the reductions in the Additional Registration
Fee of vehicles and the 15% cut in road taxes that will accompany
the expansion of the Electronic Road Pricing system.
4.84 We will also introduce changes to the tax levied on
private diesel cars. The current special tax on private diesel
cars is too punitive, and explains why we only have one such
car on the road today. I am informed that there are another
two on Pulau Ubin, but they do not pay the special tax on
Pulau Ubin. The changes will narrow the difference in the
cost of fuel consumption that a motorist faces, between a
Euro-IV car and a petrol car.
4.85 Details of the special tax and liquor duties are at
4.86 With the Speaker’s permission, I will continue
later with the changes we will make to build a resilient community.