Richard Hu Tsu Tau
Singapore
“Sir, I think it is eminently fair, because the proposal really is for the Government to spend money to give shares to Singapore citizens. Either you agree or you do not agree. Or, if you agree, perhaps you consider the amounts insufficient or too much.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time". The purpose of this Bill is to make provision in accordance with Articles 148(2) and 148C(2) of the Constitution for additional expenditure in excess of the provisions authorised by the Supply Act, 2001.”
“I think the Prime Minister and DPM Lee have already explained it will be based on income levels, with people living in flats as a proxy. So there is no political content in it. It depends on the income level, whether you have served national service or whether you are an elderly person.”
“I really do not understand. I know you are arguing on technicality for which I agree that you may have a point. But, nevertheless, because it is a proposal to share Singapore's surpluses with the population, the distribution is not something which you can argue against.”
“As I said, the estimates will be available around mid-October. I do not think, at this time, I want to give a specific date when the second package will be announced, but it will be done as soon as practicable. IN-PRINCIPLE AGREEMENT WITH MALAYSIA ON OUTSTANDING BILATERAL ISSUES (Assessment) 4.”
“Mr Speaker, Sir, when the $2.2 billion off-Budget package was announced in July this year, we said that the Government would do more to assist Singaporeans if the global economic situation worsened in the coming months.”
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“The answer to that is "yes". It has been extensively investigated by the STH Board and by the Ministry of Finance.”
“Its four other business sectors are profitable. Two business sectors are publicly listed. The publicly listed portions of the group have market valuations many times the initial Government investment in them. Almost by definition, technology venture activities carry greater risk. Not all of them can be expected to succeed, nor will they be profitable every single year. But taken overall, such leading edge activities should yield definite returns. They are essential to the business strategy of a technology company like STH. STH cannot rely on its traditional activities to grow indefinitely year after year. STH's technology ventures enable the group to continually explore new areas of opportunities, and identify promising fields to expand into. STH has to maintain a balance between established, profitable activities and these new, more risky enterprises. I am satisfied that in doing so, the STH Board has discharged its responsibilities competently and to the best of its ability.”
“Mr Speaker, Sir, Singapore Technologies Ventures (STV) lost $22 million in 1990, and $142 million in 1991. STV is a subsidiary of Singapore Technologies Holdings (STH). It was formed in September 1990 when STH restructured itself to prepare its subsidiaries for public listing. STV took over start-up and technology venture activities which had previously formed part of the other business sectors of the STH group. Some initial losses for these operations are unavoidable. The activities are capital and technology intensive. They require long gestation periods before showing results. They are also vulnerable to market and technological risks. However, STV's operating losses were larger than foreseen because the company had embarked on several large projects where market conditions proved more difficult than expected, partly because of the recent global economic slowdown. In addition, as STV had been formed by grouping together existing venture activities in STH's other business sectors, the company initially had an un- suitable capital structure, with too much debt and too little equity. STV's losses included start-up development and operating expenses, heavy interest charges, and overseas training of technical staff in specialised skills. In view of the uncertainties, STV took a conservative approach and wrote down a large part of its pre-operating expenses. The STH Board has been working closely with the STV Board to tackle STV's problems. It has taken steps to improve STV's capital base. STV should turn around within the next two to three years. STV's short record must be seen in the context of the performance of the STH group as a whole. STV is one of the five principal business sectors of STH. Over a longer time perspective, the STH group has been successful.”
“Mr Speaker, Sir, I beg to move, "That Parliament, in accordance with section 11(1) of the Government Securities Act, 1992, resolves that the Minister for Finance be authorised to borrow by the issue of Government Securities in Singapore a sum not exceeding $100,000 million." Sir, it is estimated that a sum of $100,000 million in Singapore Government Securities would have to be issued over the next five to 10 years to meet the demand for Government Securities. About 80% of the Government Securities will be issued to the CPF Board. The remaining 20% will be issued to cater to the demand of banks, insurance companies, other financial institutions, and corporate and individual investors. The authority of Parliament is requested to enable the Government to issue Government Securities up to an amount not exceeding $100,000 million. Sir, I beg to move. Question put, and agreed to. Resolved, "That Parliament, in accordance with section 11(1) of the Government Securities Act, 1992, resolves that the Minister for Finance be authorised to borrow by the issue of Government Securities in Singapore a sum not exceeding $100,000 million." ADJOURNMENT”
“Sir, I beg to move, "That the Bill be now read a Second time." At present, diesel tax is computed on a monthly basis. It is payable from the first day of the month when a vehicle is registered, regardless of the date of registration. If a vehicle is de-registered or laid-up before the last day of the month, the tax is still payable for the whole of that month. Refund will only be given for the remaining complete months for which the tax has been paid. It has now been decided that diesel tax will be pro-rated on a daily basis for the actual period of use. Under the new system, diesel tax will be computed from the date of registration of the vehicle instead of from the first day of the month. If a vehicle is de-registered or laid-up before the end of the month, refund will be granted for the entire unused period. The Customs (Amendment) Bill is to provide for the pro-rating of collection of diesel tax. It will also empower the Registrar of Vehicles to seize and dispose of a motor vehicle for the recovery of arrears of diesel tax. Mr Speaker, Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. -- [Dr Richard Hu Tsu Tau]. Bill considered in Committee; reported without amendment; read a Third time and passed. TELECOMMUNICATION AUTHORITY OF SINGAPORE BILL Order for Second Reading read.”
“Sir, I beg to move, "That the Bill be now read a Third time." Question put, and agreed to. Bill accordingly read a Third time and passed. CRIMINAL PROCEDURE CODE (AMENDMENT) BILL Order for Second Reading read.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The purpose of this Bill is to make provision in accordance with Clause 2 of Article 148 and Clause 2 of Article 148(C) of the Constitution of Singapore for additional expenditure in excess of the provisions authorised by the Supply Act, 1991, and the Resolution of Parliament regarding Development Estimates made on 21st March 1991. The additional sums have been presented as Supplementary Estimates which have been considered and approved by the House as Command Paper No. 8 of 1992. Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time. Third Reading”
“Sir, I beg to move, "That the Bill be now read a Third time." Question put, and agreed to. Bill accordingly read a Third time and passed. SUPPLEMENTARY SUPPLY BILL Order for Second and Third Readings read.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." In accordance with Article 148 of the Constitution of Singapore, heads of expenditure to be met from the Consolidated Fund and Development Fund, other than statutory expenditure, have to be included in a Bill to be known as the Supply Bill. The purpose of the Supply Bill before Members is therefore to give legislative approval for the appropriations from the Consolidated Fund and Development Fund to meet expenditure in the financial year 1st April, 1992 to 31st March, 1993. The heads of expenditure and the sums that may be incurred in respect of each head are shown in the schedule to the Bill. These have been approved by the House in the Main and Development Estimates of Expenditure for the financial year 1st April, 1992 to 31st March, 1993, and appear on pages 47 and 48 of Command Paper No. 9 of 1992. The Supply Bill, when approved, will empower me to issue warrants, authorizing expenditure up to the amount for each head as shown in the Bill to be paid out from the Consolidated Fund and the Development Fund. Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time. Third Reading”
“Mr Speaker, Sir, I beg to move, "That Parliament doth agree with the Committee on the said resolutions." Question put, and agreed to. Resolutions accordingly agreed to. SUPPLY BILL Order for Second and Third Readings read.”
“Mr Speaker, Sir, I beg to report that the Committee of Supply have come to certain resolutions. First Resolution reported -- "That the sum of $10,472,299,590 shall be supplied to the Government under the heads of expenditure for the public services shown in the Main Estimates of expenditure for the financial year 1st April, 1992 to 31st March, 1993, contained in Paper Cmd. 9 of 1992." Second Resolution reported -- "That the sum of $8,233,857,800 shall be supplied to the Government under the heads of expenditure shown in the Development Estimates for the financial year 1st April, 1992 to 31st March, 1993, contained in Paper Cmd. 9 of 1992."”
“Some of them are quite old and we have areas of significant urban decay which is undesirable. The Government's programme is to create several things at the same time. First, upgrade the quality of urban housing in HDB estates, and, secondly, provide help to HDB residents to increase their asset values. Whether such a programme can be applied to private residential housing is something which I think we need to consider very carefully. The general assumption is that people living in bungalows or private housing are usually better off financially and, therefore, owners of landed properties cannot justify Government's help or subsidy in any form, other than the beautification, greening attempts made some years ago. However, if Mr Heng can let me know the type of houses that he has in mind in his constituency which are in such a bad state of repair, where the residents are so poor that some form of upgrading is necessary, I am sure we would be happy to consider.”
“Sir, on the question of carried forward losses, we have been satisfied that the arrangements introduced so far work satisfactorily. The reason for this is up to now, we have received 34 applications for such approvals, and half were approved. The ones which were not approved were rejected because there were suggestions or indications that these companies were bought over for tax reasons. However, Mr Heng has brought up a different category of companies. He talks about new small companies which face problems peculiar to themselves, where a general application of rules applying to all companies, big and large, might work to their disadvantage. I am prepared to consider this as a special case and I will ask my officers to examine it and we will ask Mr Heng for details. The idea is not to penalise companies but to ensure that in the process of granting these concessions the Government is not taken advantage of. But if there are ways in which we can ease the problems of companies by administrative changes, I am quite prepared to do so. 2.30 pm The second point he raised is tax relief for upgrading of private residential properties. This is a problem which always arises when we give something to some sectors of the population, and the question arises: why not extend it to some one else? But I think it is a fair question. I would like to point out that the HDB upgrading scheme is essentially directed at persons who are living in HDB flats and who therefore need the subsidies which the Government grants via the HDB flat scheme. Without the upgrading process, it is likely that many HDB home owners would not have the resources to upgrade some of the older flats, both internally and externally.”
“I understand the concern of the Member for Yuhua. I can only say "maybe" in the sense that we are reviewing the whole remuneration package of the civil service, and this is one aspect which we will consider. Mrs Yu-Foo Yee Shoon: Sir, I think the answer is better than "no". I beg leave to withdraw my amendment. Amendment, by leave, withdrawn.”
“No. That would be only true if your revenue is unable to support the total budget. Since we generally have a surplus, this problem does not arise. So it does not really affect expenditure elsewhere. I hope this satisfies him. I do not quite follow his comments on the cost of administration. But I will try and answer him separately because we are running out of time. He seems to suggest that the cost of administration per staff is very high relative to other programmes. I do not have figures for the other programmes. So I cannot really comment now, but I will give him a separate answer. I believe I have covered generally all the questions raised by Members. But I have a few minutes left. I would like to make a general statement on a matter which I raised in the Budget debate which was not adequately explained. In the Budget debate, I said that the Government is comfortable with a growth rate of between 4% and 6%. Some Members have said that we should not try and constrain the growth of the economy. Where the wind is blowing, let us use the sail and catch the wind. I entirely agree. What I meant was, on a macro level we are comfortable with the 4% to 6% increase. However, if individual companies can grow at 20%, 50%, 100%, please do so. But do not expect the Government to give you incentives to do that. You must do it within the constraints of manpower, levies on foreign workers and the current levels of income tax. At 4% to 6% we do not want to stimulate the economy. But those who can do better by automation or by any form of ingenuity, please do so, and there is no suggestion that I want you to cut back to 4% to 6%.”
“I have given the reason to Mr Chew why we do this, and it is not due to a lack of ability to forecast. It is the lack of ability to fill these positions. We could remove them of course, but I have explained why we do not want to do that. 2.15 pm Mr Low also suggested that since we consistently over-estimate and under-spend, that this money be spent for all purposes like subsidising the poorer sectors of the population. But this is an over-simplistic approach. We generally end up with a surplus. So whether we under-estimate or over-estimate and under-spend or over-spend, it does not really affect the basic balance sheet. We will subsidise and spend on the things which are necessary and we will provide for it. And we do not just take money which is under-spent in other departments to spend in these areas.”
“We are in the process of working out a new system of statistical collection for the financial sector, which we hope would better reflect the actual performance of this sector in the future. Whilst it is true that our stock market is small in relation to other financial centres, I think it speaks well of our financial people that they have recognised this fact and have been actively trying to expand into other areas of activities which will allow the centre to grow, notwithstanding our small internal market. Examples are the development of the forex market in which if you were to simply take the Singapore domestic Forex Market, we will have a negligible share. Nevertheless, over the last 10 years we have grown into the fifth largest forex centre in the world, with a turnover in the forex market amounting to over US$80 billion per day, overtaking Hong Kong. We have also developed a very active financial futures market through Simex. We are expanding into the commodities futures market through the Commodities Futures Exchange, and we are actively trying to get foreign companies to list their shares here. The new incentives of double tax deduction for the creation of new financial instruments is a step in the same direction. We do not know whether it will work, but we will certainly give it a try. I do not propose to go into details now, as the MAS will be issuing detailed guidelines very shortly, and any questions can be referred to the MAS. Mr Low Thia Khiang has said that we tend to over-estimate our manpower expenditures. I think there is a simple answer to that. As I mentioned earlier, the manpower figures reflect the establishment and since the establishment is always larger than the actual, so the cost would reflect this.”
“Lastly, we have a tax system here where our tax collectors are familiar with the various methods of evasion. Can you imagine the problems that they will have to encounter if they have to re-learn or at least learn a new system of catching evaders under a completely different tax system? I think the whole idea will horrify IRD who cannot even collect the taxes as they stand now. So it is a good idea, it is fundamentally sound, theoretically desirable, but not practical in the present circumstances. I think we had best wait for other countries to convert before we follow. Mr Yatiman has said that the street names should reflect the local flavour. I totally agree with him. I support the Committee in which he is a member and it is something that we should encourage. Mr Leong Horn Kee has spoken at length on the development of Singapore as a financial centre. Based on the statistics last year, it would look as though as a financial centre we are slowing down quite rapidly. So this may be an area of concern. However, in my Budget speech I did mention that the statistics in themselves do not really reflect the true picture. Conventional statistics used internationally tend to place emphasis on the volume of transactions which, in the case of Singapore, particularly on the lending side, has declined last year. But Singapore's financial sector has in fact diversified into many other areas of value-added activities which are not captured by our current system of statistical collections so that, although volume-wise, the level of activity has declined, profit-wise the financial sector is still doing quite well.”
“The advantage of being a statutory board is that the IRD will be able to hire and reward and remunerate the staff in accordance with market demands and the extra cost of new manpower which is required to catch up with the backlog of cases plus the extra remuneration they will have to pay will be more than covered by the foregone tax which we are unable to collect at the present time. Mr Koo Tsai Kee gave a very passionate exposition in defence of the expenditure tax proposal. Whilst I do not disagree with him on the conceptual attractiveness of an expenditure tax proposal, unfortunately, it is extremely difficult to introduce it in practice. Many countries like India and Sri Lanka, which have tried it have given up. I do not propose to go into a lengthy rebuttal about what Mr Koo has put forward but merely to say that in the absence of general acceptance of the expenditure tax proposal worldwide amongst our trading partners, it is not practical for us to convert to that system, simply because we have a large network of double tax agreements. Any conversion to a tax system which is significantly different from our trading partners' will create major cross country problems, apart from the fact that there are many internal complications, not the least of which is the resistance on the taxpayer to have to divulge all his expenditures to the IRD. Although Mr Koo has said that he himself does not mind because he would be making most of his purchases with credit cards. Unfortunately, that is not the case for many people who would, I think, inherently object to further scrutiny by the tax authorities, not only on what he earns, but also on what he spends. I do not think I need elaborate on the consequences of such a move.”
“However, I will take up his recommendation for consideration by my Ministry and by the Ministry of Labour again. Of course, the position is never static. We will look at it from time to time. Mr Chew Heng Ching has asked a specific question about the Inland Revenue Department, whether it faces a particular problem, how serious is it, what is it costing Government, and what are the reasons underlying the conversion of the Inland Revenue Department into a statutory board. First, I would like to clarify that it is going to be converted into a statutory board, and not into a company. It is not being corporatised. The Inland Revenue Department faces a particular problem because of the attraction by the private sector for its experienced tax staff. They are very valuable and marketable people, and with growth in the financial sector tax specialists and accountants are in great demand. So it has suffered the highest degree of attrition of any Government Department or statutory board. As a result, this has caused serious problems in the Inland Revenue Department's ability to collect taxes. At the end of 1990, 35,000 or 50% of corporate tax cases remained unsettled. 380,000 or 40% of individual taxpayer cases also remained unassessed. 52,000 or 45% of small business cases also remained unassessed. The tax shortfall of uncollected tax due is about $1 billion, or 20% of total tax collectable. So the interest lost on this sum is very substantial and therefore something has to be done to correct this situation. The intention is to introduce legislation some time this year to convert IRD into a statutory board.”
“However, the issue of medical benefits for the civil service as a whole would be looked at periodically in the context of a total remuneration package. Mr Chew Heng Ching has asked for some figures on why the Government continues to maintain establishment figures which are consistently, year in year out, larger than the actual staff numbers. I would like to explain that this arises because the establishment figures are reviewed periodically by the Auditor-General's Department and by the Ministries themselves to establish a desirable level of establishment for each Organ of State or Department. But the actual numbers which appear yearly reflect the actual numbers which can be filled. Government has for some years now been unable to fill a significant number of these vacancies because of the general pressure on staff in the economy as a whole. However, we are obliged to maintain the establishment figures in the hope that eventually these vacancies can be filled. Removing them permanently, even though our review ascertains that they are desirable and necessary posts, would mean that we are deliberately cutting out manpower positions which would result in the deterioration of services. So there is always going to be a gap between the establishment numbers and the actual staff numbers because of firstly, our inability to fully recruit to fill these gaps, and, secondly, it also provides a cushion for resignations and retirements and so forth. Dr Ow has also asked whether the Ministry can extend the relief for maids to different categories of persons. I do not propose to respond to this in detail because the Minister for Labour has already discussed this in quite great detail a couple of days ago.”
“The reason for this is the strong pull from the financial sector which has been growing very rapidly over the last few years, attracting experienced accountants, tax specialists and so forth. The turnover rate in the Inland Revenue Department in 1991 was 11%, whereas it was 10% in the Auditor-General's Department. In the case of the Inland Revenue Department, a separate question has been asked about IRD's problems which I will deal with in greater detail later. But the high turnover was one of the reasons why we are proposing to convert the Inland Revenue Department into a statutory board. Within Government itself we try to maintain levels of pay which are comparable to the private sector as far as it is feasible, and currently we are reviewing the whole compensation package for civil servants. And from time to time, we will see what needs to be done to ensure that the civil service will at least be able to attract and retain a sufficient number of high quality staff to ensure that the public service does nordsuffer. The Member has also asked about the progress made in the conversion exercise from the pension scheme to the CPF scheme. This matter is still under review and when it is ready we will announce it. But I would like to emphasise that whatever proposal is introduced, civil servants will continue to have the option to elect to remain or take on any new scheme which they choose. Dr Ow has also asked whether the Government is prepared to adjust medical benefits of civil servants in view of our rising costs. I believe that this is probably unnecessary because the existing package of medical benefits which the civil servants enjoy is quite generous; it is tax free and there are really small co-payments required.”
“Dr Ow also expressed concern that the slowing down of the Singapore economy may induce speculators to try and raid the Singapore dollar by attempting to force it down. I do not think this is likely to happen because speculators in 1985 were very badly beaten when they tried to take a negative position against the Singapore dollar because of the weakening of our economy. With the immense resources at its disposal, I think the MAS stands ready to clobber any attempt to do this again. I can assure Dr Ow that I think it is unlikely to happen. Dr Ow has also expressed concern about manpower in the civil service and the question of job-hopping and wants to know what is the overall turnover rate in the civil service, what are the characteristics of job-hoppers and so forth, whether there are particular departments in the Ministries where these problems were especially severe. I can say that the overall turnover rate in the civil service as measured by the ratio of employees resigning from the service to the average civil service population base was around 3.8% last year. I think this is an acceptable and quite reasonable rate for an organisation as large as the civil service, especially considering our very tight labour market. 2.00 pm We do not have a policy on what is an acceptable turnover rate, although naturally we would like to keep this as low as possible. But some degree of turnover, I think, is inevitable, particularly in Government Service, nor do we target any particular level which is comfortable. However, it is true that in certain Government departments, and in particular the Inland Revenue Department and the Auditor-General's Department, the overall rate of turnover was much higher.”
“Mr Speaker, Sir, first, I would like to thank Dr Ow Chin Hock for his support of our policy on the Singapore dollar exchange rate. I have said enough in my Budget response on Tuesday. So I shall not say any more about our policy on this matter. Dr Ow has, however, expressed concern about the capital outflow position last year in which there was a decline in our capital account due to an outflow. However, I like to point out the apparent decline in Singapore's surplus on the capital account in the balance of payments last year merely reflected the unprecedented level that it had reached in 1990. The capital account surplus was a record $11.7 billion in 1990, exceeding even the total surpluses of the preceding six years taken together. It was therefore not possible to sustain this extraordinary capital inflow. The inflow reflected both a strong inflow of foreign direct investment and portfolio investments by foreigners in 1990, as well as substantial borrowings by the domestic banking system. Banks borrowed from abroad because of strong credit demand and tight liquidity due partly to several new share issues and a buoyant share market in the first half of the year. In 1991, the capital account surplus was lower at $5.4 billion, but still remains far higher than in preceding years. It was more than twice the average for the period 1988 to 1989. I believe we should not be overly concerned with the swings in the short-term capital flows in response to interest rate movements. What matters is the underlying strength of our overall balance of payments, including the current account and both long-term and short-term capital flows. Singapore recorded a balance of payments surplus of $7.3 billion last year which was well above its average of the preceding three years.”
“The giving of scholarships to the top 25% of independent school students serves a different purpose. It is intended to motivate students to give of their best. All these demonstrate the Government's commitment to developing each individual to his highest potential. A number of questions have been raised on civil service manpower, but I will not touch on them this afternoon as they are more appropriately dealt with in the Committee of Supply. Finally, Mr Deputy Speaker, Sir, I would like to conclude by saying that over the last few years, Singapore has enjoyed spectacular economic growth. As our economy matures, we have to come to terms with a lower but more stable rate of growth. This Budget reflects the Government's long-term policies, serves to consolidate on what we have achieved so far and provides for continued economic growth in the future. [Applause]. Question put, and agreed to. Resolved, That Parliament approves the financial policy of the Government for the financial year 1st April, 1992 to 31st March, 1993. ADJOURNMENT Resolved, "That Parliament do now adjourn." -- [Mr Wong Kan Seng]. Adjourned accordingly at Twenty-six Minutes past Six o'clock pm. Committee of Supply - ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL 1992 TO 31ST MARCH 1993 (Cols. 723 - 726) tables - FUNCTIONAL CLASSIFICATION OF GOVERNMENT EXPENDITURE, Comparative Performance of Selected Low-Tax and High-Tax Countries, TAXATION AND ECONOMIC PERFORMANCE (Cols. 727 - 732)”
“On taxation, corporate taxes have been cut from 40% in 1987 to the just announced 30%, and for personal income tax the top marginal rate has been reduced to 33% since 1978. The only increases in Government levies have been in areas where prices have been used as the mechanism to allocate scarce resources, such as foreign labour and cars. And I hope that Mr Chiam and Mr Ling are not suggesting that we should resort to a process of pure allocation as the preferred route in order to avoid the levies. Such an alternative has been used in Communist countries and the outcome has always been spectacular inequities and general economic chaos. I would also remind Mr Chiam and Mr Ling that much of the revenues generated from the levies are now used to fund both educational and social programmes. The Member for Bukit Gombak is supportive of the Government's emphasis on education. He has, however, expressed concern that Government has not invested sufficiently in it. I should point out that Government will be spending $2.78 billion on formal education in fiscal year 1992. This amounts to 4.2% of GDP, which is substantially higher than that in recent years. In addition, a sum of $1 billion has been provided to the Education Endowment Fund. The Member has specifically raised the point that 75% of independent school students who would not be receiving scholarships under the Edusave scheme, would not be adequately provided for. Let me remind the Member that Government has time and again given the assurance that no student would be deprived of an independent school education because of financial hardship. All students with financial difficulties would have recourse to assistance schemes, administered by the Ministry of Education and the independent schools.”
“Our current level of reserves is, therefore, comfortable. However, bearing in mind that as our population grows and our standard of living increases with economic growth, our import needs will also grow. This means that the absolute level of our reserves cannot remain static but must grow in line with GDP growth. This we can achieve if our reserves are invested wisely and the income from such investments is allowed to accumulate and is not consumed. Hence, the provision that reserves accumulated by past governments should not be spent without the concurrence of the Elected President. Having said this, I should also point out that for a country like Singapore, which does not have natural resources, our aim should be to accumulate, over time, as much reserves as we can afford to do so, without overtaxing our people and without denying ourselves the expenditures necessary for economic growth. This we have succeeded in doing over the past 25 years, and we should continue to do so in the future. We should endeavour to emulate the Swiss whose surplus foreign assets stand at US$185 billion, or 94% of GNP. In addition, the Swiss also have a cushion of US$237 billion in 1989, or 120% of their GNP in private foreign assets held overseas; whereas in Singapore our private overseas assets are only US$7.5 billion, or 25% of our GNP. We have a long way to go before we can hope to attain the Swiss level of security. A comfortable stockpile of reserves is our best insurance against future external economic uncertainties. I will now turn to the question of the annual budget surpluses, which Mr Chiam and Mr Ling imply, have been achieved through increases in taxation and through insufficient spending on essential areas such as education. The facts contradict these contentions.”
“It is gratifying that they recognise the need for a country, like Singapore, to maintain adequate reserves, and I hope that this means that they recognise the wisdom of Government's policies and will vote in support of the Government's Budget later on. However, both Mr Chiam and Mr Ling have also said that they are strongly opposed to the Government's continued accumulation of substantial surpluses year after year, with the implication that this has only been achieved through taxing the people heavily and by not spending sufficiently on vital areas, such as education, culture and the arts. They have also demanded that Government declares its target level of reserves, again with the implication that without this, there will be no upper bound to the Government's appetite for reserves accumulation, and that this can only come from squeezing the people for increased taxes. I will respond to both these statements and, in the process, I hope that I will be able to clear up some misconceptions. First, on what is considered to be an adequate level of reserves. It is generally accepted internationally that countries should have hard currency reserves equivalent to between three and six months' imports. Depending on a country's degree of self-sufficiency, reserves at these levels should be sufficient to provide a cushion against temporary dislocations in a country's economy. For a country like Singapore, which imports all its energy, practically all its food, and up to 70% of its manufacturing inputs, its comfortable level of reserves should clearly be around the upper bound of the three to six months' range, and more, if possible. Singapore's current level of official foreign reserves is $55.8 billion, equivalent to 5.9 months of total imports, or around 80% of GDP.”
“What the figures cannot show is that, over the years, Government has allocated large amounts of land for our public housing programme. Singaporeans have been able to buy flats at subsidised rates, sometimes even below the cost of construction. The result is that 86% of our population live in public housing and more than 90% of them live in flats they own. Table B shows much the same pattern on a per capita expenditure basis. It is worthwhile noting that, on this basis, Government expenditure is highest in Singapore. Bigger Government does not mean better Government. Bigger Government means heavier tax burden. In Singapore, Government frugality has not been at the expense of a higher standard of living for Singaporeans or higher investment. I refer you to Table C which shows comparative figures on Government taxation and the economic performance for a cross-section of countries based on figures taken from the 27th February 1992 issue of the Asian Wall Street Journal. The figures show clearly that lower taxes are directly related with higher investment and higher productivity growth and, hence, faster growth in per capita income. The same information is presented graphically in Chart 1. It is, therefore, fallacious to say that lower Government spending and lower taxation would extract a price in the form of adjustments to be made by "those below", meaning the lower-income population. Frugal government spending in the right areas allows the economy to grow and citizens to prosper. I will now touch on the level of reserves and their usage. I was pleasantly surprised to note that Mr Chiam, Mr Ling and Mr Cheo have come out firmly against the squandering of our reserves.”
“I refer you to Table A which shows the latest Government expenditure expressed as a percentage of GDP of the four Asian NIEs. Some points are worth noting. tables - FUNCTIONAL CLASSIFICATION OF GOVERNMENT EXPENDITURE, Comparative Performance of Selected Low-Tax and High-Tax Countries, TAXATION AND ECONOMIC PERFORMANCE (Cols. 727 - 732) Governments of the NIEs spend roughly the same amount. The NIEs' expenditure averaged around 20%, with Taiwan the highest at 27%. This compares with a world average of 40% and a high of nearly 60% in countries like Sweden, Norway and the Netherlands. Singapore spends about the same on general administrative services and defence as the other NIEs, at around 7% to 8% of GDP. The exception is Hong Kong which is a colony and hence has no defence expenditure. In terms of economic services, it is interesting to note that the other NIEs are doing more than Singapore. Some of the higher expenditure in the other NIEs represents catching up on major infrastructural works. But the need to "hone our productive capabilities" is not an imaginary one. We are also above average in spending on social services, although details vary. All the NIEs spend heavily on education, reflecting the importance of the quality of human resources and economic development. Spending on health care and social welfare is comparable to the other NIEs. We spend about 1.4% on this compared with 2.9% for Hong Kong, and 2.3% for Korea. But the figures do not give the full picture. In Singapore, we have Medisave and CPF which are tax exempt. These provide Singaporeans the resources to look after their health care and social security needs. Our spending on housing and community amenities is again comparable to the other NIEs.”
“If the couple qualifies for procreation incentives for the third child, they will be allowed a special tax rebate of $20,000. Each special tax rebate can be consumed over a seven-year period. Some Members have spoken on the goods and services tax. I would like to thank them for their suggestions. We will take note of these in the finalisation of the White Paper. So I would not deal with this matter today. Questions have been asked on the subject of personal expenditure tax. Again I would not deal with the subject today, but will refer it to the Committee of Supply. Fiscal prudence. Government frugality appears to be an over-rated virtue in the eyes of some commentators and some Members. For example, a recent article in the Straits Times said, and I quote, "Budgets revolve around maintaining the corporate entity's capacity to grow and maintain its economic capacity." I am quoting from a commentator, who declined to be named, who said that, "The adjustments are made by those below" with the implication that it is the poor who carry the load. Further on the article said, "But such frugality has been achieved at a price. Social security and welfare spending in Singapore is minuscule by international standards." Some Members appear to share the same sentiments. I believe that this is a dangerous line to take. It gives the impression that the Government budget does not spend enough on things that matter, and that, as a result, some people have suffered. Let us also have an international comparison, but with countries at a similar stage of development and who are also acknowledged to be economic successes, that is, the newly industrialised economies, or the NIEs. A number of tables (Cols. 727 - 732) have been distributed by the Clerk.”
“Some Members have called for personal reliefs to be increased. I must remind Members of our policy to ensure that the costs of social and security services provided by the Government are borne by as many people as possible. To achieve this objective, we need to maintain a wide tax base. As increasing reliefs would reduce our tax base, we have therefore instead preferred to reduce the tax burden for everyone through the alternative route of lowering our individual income tax rates over the years, which we have indeed done. I must also point out that the personal allowance of $2,000 is the only relief which has not been revised. Several increases in the reliefs for earned income, wife, children, parents and handicapped dependants have been announced in the past 12 years. In the past five years alone, we revised the following reliefs: wife relief was increased in the year 1990; child reliefs were increased in the Years of Asessment 1988 and 1990; while reliefs for parents and handicapped dependants were increased in the Years of Assessment 1990, 1991. Furthermore, our package of personal reliefs for the average family is comprehensive and generous. Let me illustrate this point with some examples. A working couple with two children and husband in active reserve service is now entitled to $10,000 in personal reliefs. A working couple with three children and husband in active reserve service is entitled to $11,500 in personal reliefs. In addition, if the couple qualifies for procreation incentives for the second child, they will be allowed a special tax rebate ranging from $5,000 to $20,000, depending on the age of the wife when the second child is born.”
“The Member for Eunos GRC, Mr Sidek Saniff, has called on Government to set up a business bureau to assist small local retailers. As part of the Retail Sector Development Plan, EDB will set up an Enterprise Promotion Centre later this year in one of the retail associations. This will be a one-stop assistance and referral centre where retailers can seek advice, information and contacts with relevant Government bodies. Some Members have called for the top marginal individual income tax rate of 33% to be reduced to the corporate tax rate of 30%. On the surface, the 3% differential between the top marginal individual tax rate and the corporate tax rate appears to favour businesses. However, the effective tax rate for individuals in the highest tax bracket is considerably lower than the 33% because of our graduated individual tax rates. For example, the effective tax rate for an individual with a chargeable income of $400,000 per annum is only 26.5%. I would therefore like to reiterate that our individual income tax rates are lower than those in many other countries and there is no need to revise the tax schedule at the present time. As pointed out by the Member for Leng Kee, the bulk of the tax burden falls on those in the higher income groups. About 10% of taxpayers contributed 75% of the total tax collected for the Year of Assessment 1990. On the other hand, taxpayers with chargeable income of $5,000 and below comprised about 40% of the tax base but carried only 2.3% of the tax burden. A few Members have asked for a comparison of our individual income tax rates vis-a-vis Hong Kong. I do not propose to deal with it here as a comparison would be long and tedious, but I will take it up again in the Committee of Supply if time allows.”
“Government recognises the importance of local enterprises in our economic development. Many programmes have been implemented to help these enterprises grow. They include the Local Enterprise Financing Scheme, Market Development Assistance Scheme, Local Industry Upgrading Programme and the Business Development Scheme. These schemes are to help local enterprises acquire advanced production and marketing know-how, improve product quality and gain new markets overseas. Many local enterprises have benefited from these programmes. Last year, grants amounting to $33.8 million had been given to over 13,000 projects undertaken by local enterprises. In addition, $376 million in loans have been granted to over 1,700 projects under the Local Enterprise Financing Scheme. To help the larger local enterprises to expand their operations overseas, the Economic Development Board (EDB) has recently introduced the International Direct Investment Programme. The aim of this programme is to develop a core of home-grown MNCs by facilitating overseas investments by Singapore companies. As for the smaller local companies, EDB is formulating a new initiative called the Local Industry Globalisation Programme. Details of this programme will be released when it is finalised. Local enterprises also enjoy a number of tax incentives. Pioneer, Post-Pioneer and Investment Allowance incentives are all available to them. In addition, local enterprises can obtain a double tax deduction for expenses incurred in carrying out overseas marketing campaigns and for maintaining trade offices overseas. For the past five years, a total of $135 million worth of investment allowances has been given to local enterprises. They also enjoyed double tax deductions amounting to $61 million over that period.”
“The only change is that inflation would be higher. Exchange rate policy, like any other Government policies, should be guided by long-term considerations. The best way exchange rate policy can promote long-term export competitiveness and sustained economic growth is through keeping inflation low. With the slowing down of Singapore's growth rate, I would expect the upward pressure on the Singapore dollar should also ease. A few Members have also commented that several Government-mandated cost changes were made outside the Budget. I would like to assure Members that, whenever possible, Government will announce major cost changes in the Budget. However, it is not always possible to do so if the changes are not introduced for revenue or budgetary reasons. For instance, the increase in foreign workers levy was necessary to curb the sharp increase in demand for unskilled foreign workers. However, it was announced before the Budget in order to give sufficient notice to the industries affected so that they could make the necessary adjustments. I shall now turn to the discussion on taxation. A few Members have asked for a comparison of the corporate tax burden in Singapore with that in Hong Kong. I would point out that it is not appropriate to compare ourselves with Hong Kong in this area. We are neither a colony nor a tax haven. What Singapore is aiming for is not to have the lowest corporate tax rate in the world. What we want is to keep our rate sufficiently low to attract a continuing stream of high quality investments and promote private sector growth, and we have been quite successful in this area. Some Members have commented that Government has not given sufficient assistance to help local enterprises develop and expand overseas. This is not the case.”
“The strength of the Singapore dollar has itself been a factor underpinning our economic fundamentals. It has allowed us to enjoy a significantly lower rate of inflation in recent years compared to the other NIEs, and most other countries. The appreciation of the Singapore dollar in recent years has served to neutralise completely foreign inflationary pressures. It has also exerted a cooling effect on the economy which had been growing well above its underlying potential until recently. If the exchange rate had instead been held at its 1988 level, inflation would have averaged 7% last year, twice as high as the 3.4% that we actually experienced. Calls have been made for a weakening of the exchange rate to offset the effects of higher labour costs in view of the economic slowdown. Such a move is bound to be counter-productive. In the short term, there would indeed be some gain from a weaker exchange rate. Our exports will become more competitive and we may achieve a little higher GDP growth. Import prices, however, would also be higher. Since our exports have a high proportion of imported inputs, ranging between 60% and 70%, the benefits of a weak currency would largely be nullified. Over the longer term, export competitiveness arising from a weaker currency would be further eroded in two ways. First, in the present tight labour market, wages would rise even further as the initial expansion in exports would lead to more demand for labour. Second, the increase in the price of imported energy, food and other consumer goods reduces real wages which workers would want to restore. The resulting increase in wages and other costs would completely offset the gains from a weaker currency. The level of competitiveness would be back to where it was.”
“It is in cognisance of the slowdown in our economy that the employers' contribution rate is increased by only half a percentage point this year. Furthermore, I would remind employers again that CPF contributions constitute part of wages, and any increases in their CPF contributions should be taken into account in wage adjustments. That this exhortation has consistently fallen on deaf ears is a clear indication that the economy has been over-heating and creating a demand for labour which can only be met by constantly rising wages. Several Members have suggested that if the economy picks up, Government should speed up the restoration of CPF contribution rates. Let me assure Members that the Government is committed to restoring the CPF contribution rate to the target of 40%, with equal contributions by employers and employees. However, this must be done without hurting the economy. Government hence reviews and adjusts the CPF contribution rates each year according to economic conditions. We have allowed ourselves up to 1996, at the latest, to restore fully the CPF contribution rates. This, however, does not preclude us from a quicker restoration if the economy is able to support it. Some Members and many businessmen are concerned about the continuous strengthening of the Singapore dollar against other currencies, and the impact of the strong Singapore dollar on our export competitiveness. I should explain that the strengthening of the Singapore dollar is a reflection of our strong economic fundamentals. These include good economic growth, low inflation, budget surpluses and a healthy foreign reserve position. Funds have flowed into Singapore because investors have confidence in the continued sound management of the economy.”
“Business costs as measured by the unit business cost (UBC) of the manufacturing sector grew by 5% in 1991, down from 6.7% in 1990. Many of the factors leading to the rise in business costs are not within the control of Government. The bulk of the increase is due to the rise in labour costs. Unit labour cost rose by 6.8% in 1991, about the same as the 6.6% in 1990. This is a reflection of our tight labour market. The solution to the high cost is not to avoid the increases, as these are necessary to send the correct signals to businesses to optimise the use of our scarce resources. Instead, we have to slow down the over-heating in the economy. Government will not burden the private sector with unnecessary statutory costs, but the private sector must do its part to improve productivity. I share the Members' concern that over the last three years, productivity growth has lagged substantially behind increases in real wages. This cannot be sustained year after year. All in the workforce must realise that we have to increase our value-added to enjoy higher standards of living in the future. The National Productivity Board has recently announced a four-pronged programme to raise productivity in Singapore. The Retail Sector Development Plan unveiled by MTI will also help retailers upgrade. Furthermore, the Government will continue to invest in education and training of our people in order to bring about continued economic growth in the long term. On the increase in the CPF contribution rate for employers, this is necessary to keep faith with our workers. Employers should remember that the 15% point cut in CPF rate in 1986 was meant only to be temporary.”
“I will not respond to all of them as some will be more appropriately dealt with under the relevant Ministries in the Committee of Supply. A few Members have questioned whether a lower economic growth rate would necessarily result from a maturing economy. The Member for Potong Pasir has, in particular, compared our growth rate with that of Korea. Dr John Chen has touched briefly on this and I will deal with it briefly also. Korea has indeed grown faster than Singapore last year, by about 8.6% against our 6.7%. However, if we take the period from 1965-1991, the average economic growth rates of Singapore and South Korea are the same, with both attaining 9% per annum. The growth in Korea last year was accompanied by serious problems created by over-heating. Inflation was 9.7% while the current account deficit reached an all-time high of US$8.8 billion, four times that of 1990. As a result, the Korean Government is aiming for a more sustainable growth rate of 7% this year. In addition, South Korea's per capita GNP in 1991 was an estimated US$6,300. This is only about half of Singapore's. Korea is therefore growing from a lower per capita base compared with us. When we reached this base in 1983, we were growing at more than 8%. Several Members were concerned that the Budget had not addressed fully the problem of rising business costs. Sir, the increase in business costs is a natural consequence of our strong economic growth. The Singapore economy had been growing rapidly at an average rate of 9% per annum for the last five years. This is way above the potential output of our indigenous factors of labour supply and productivity growth, with the inevitable result that there has been a strong upward pressure on wages.”
“Individuals will also enjoy a 5% rebate on income tax for the Year of Assessment 1992. These changes reaffirm Government's philosophy of taxing businesses as lightly as possible and to reward individuals for their contributions to our nation. In particular, the cut in corporate tax will help businesses cope with increases in business costs. The Budget also contains tax incentives to promote growth areas. Together with those introduced in earlier years, the overall package of tax incentives is now quite adequate. On the expenditure side, the Budget's emphasis is on investment in education, basic health care, public housing, defence and infrastructure. This is to enhance our productive capacity and ensure our national security. Investments in infrastructure, such as upgrading of HDB flats and basic hospital facilities, will also improve the quality of life without reducing the drive to work. The underlying philosophy behind this Budget remains the same as that of previous years. It is to invest in our citizens, encourage work and enterprise and subscribe to the free market. Government has succeeded in providing our people with education, public housing and basic health care at affordable costs. Those who want more must be prepared to pay for it. Government will not subsidize consumption expenditure. To do so will only undermine the incentive to work and to deplete the reserves which we have accumulated over the years. Our success has been possible because of prudent fiscal management. We should not deviate from this well-tested formula. On the contrary, the challenge ahead for Singapore would be to deal with increases in expenditure while revenue declines, as our population ages over the next 20 years. I will now deal with specific issues raised by Members.”
“Mr Deputy Speaker, Sir, I would like to thank the many Members for their keen interest in this year's Budget. The debate has been a long one, and I will try to respond as briefly as possible. Members were generally supportive of the Budget. Some, nevertheless, felt that more could be done to help businessmen in the face of an expected economic slowdown. Others, like Mr Chiam, even believe that the slowdown was brought about by Government-induced cost increases. I will respond to these concerns and try to correct the misconceptions. In resource-scarce Singapore, economic expansion is dependent primarily on growth in the labour force and productivity. Over the longer term, our labour force growth is expected to be no more than 2% per annum. As attainable productivity growth is in the region of 3-4%, we can expect sustainable non-inflationary GDP growth to be around 5-6%. To grow significantly beyond this, we will need to deploy our capital overseas into areas with the requisite land and human resources. Growth in this area will boost our gross national product. This year, the economy is expected to slow down. There is, however, no cause for alarm. The Ministry of Trade and Industry's 1992 growth forecast lies within our long term sustainable rate. We are comfortable with this. Hence, the fiscal year 1992 Budget is a mildly stimulative one, with a mild tax cut accompanied by increases in development expenditures. Excessive fiscal stimulation now will only add to pressure on wages and fuel inflation. Members can, nevertheless, be assured that Government will monitor the situation closely and respond if circumstances warrant it. In this Budget, I have, on the revenue side, cut corporate tax rate and increased personal reliefs for reservists.”
“We have eschewed wasteful consumption but invested heavily in human resources and physical infrastructure. With these foundations in place, we can face the future with confidence. Mr Speaker, Sir, I beg to move. [Applause].”
“The existing practice to disallow duty-free concession in respect of travel between Singapore and Malaysia will continue. Water Conservation Tax Water consumption follows economic growth closely. As the economy continues to expand and our standard of living rises further, the demand for water will continue to grow. We import a large part of the water we consume. Water will hence always be a scarce resource, far more valuable than its production costs alone. We need to continually encourage water conservation. The demand for water has increased by an average of 3.8% each year since 1986. The growth in domestic demand has been particularly strong, increasing by 5.8% last year. To restrain the growth in water consumption, I intend to increase the Water Conservation Tax on domestic customers who consume more than 20 cubic metres of water per month from 5% to 10%. The Tax for non-domestic and shipping customers will also be increased from 10% to 15%. The tax change will take effect from 1st April 1992. CONCLUSION The prospect for the world economy in 1992 remains uncertain. The US remains in recession. Economic growth in Japan and Germany is expected to be sluggish. The latest round of GATT talks has yet to produce a final, definitive and positive result. We also do not know if the Single European Community and the North American Free Trade Area will eventually affect world trade. Singapore will be affected by these uncertainties. Our trade growth will decline if global demand falls; investment flow into Singapore will also slacken. 1992 may therefore be a more difficult year for all of us but I am certain that we will continue on the path of economic growth. Over the years we have built up a strong economic base and installed a sound fiscal system.”
“On still wine and vermouth, the duties will be increased from $8.50 per litre to $9.50 per litre while that on cider and perry from $3.00 per litre to $3.30 per litre. Duties on arrack and pineapple spirit will be increased from $13.00 per proof litre to $14.50 per proof litre. The excise duty on beer will also be raised from $2.50 per litre to $2.80 per litre while that on stout will be raised from $2.50 per litre to $3.10 per litre. On samsoo, the excise duty will also be increased from $10.00 per proof litre to $11.00 per proof litre. Details of the duty increases are set out in the Appendix (Cols. 505 - 512). Appendix - DUTIES ON LIQUORS (Cols. 505 - 512) The increases in duties will take effect from today. The revenue yield is estimated at $23 million. Restriction of Duty Free Privilege on Liquors At present, travellers arriving in Singapore other than from Malaysia can bring in duty-free, limited quantities of liquors for their personal consumption. This is a privilege intended for international travellers. With travelling becoming more popular, the duty foregone arising from the duty-free concession has reached some $40 million a year. This loss will increase further as passenger arrivals to Singapore continue to grow. To contain the revenue loss, I have decided with effect from 1st June 1992 to restrict the eligibility of duty-free privilege for liquors only to travellers who spend not less than 48 hours away from Singapore before their arrival. This will ensure that only bona-fide travellers benefit from the concession. The restriction is not unique to Singapore. Hong Kong and Malaysia have imposed similar restrictions on the granting of duty-free privileges.”
“MINDEF further recommended that it be given this year, as we commemorate 25 years of national service. Government has accepted MINDEF's recommendations and I am pleased to announce that the following tax reliefs would be granted: a) $1,000 for all active reservists, that is, those who are called up annually for in-camp training and other activities to maintain their operational proficiency; b) $500 for all who have done national service but are not in active reserve service. The tax reliefs will apply also to those who have done national service in the other services, like the Police Force and the Singapore Joint Civil Defence Force. These reliefs will take effect from Year of Assessment 1993. The estimated revenue loss is $20 million. OTHER TAX CHANGES Tourism Cess Last year, the tourism cess rate was temporarily reduced from 4% to 3% for a period of one year. This was to help hotels and restaurants tide over the poor business conditions shortly following the Gulf War. The tourism sector has recovered from the sharp decline in tourist arrivals in the first half of 1991. For the whole year, tourist arrivals increased by 1.7% over 1990. Growth in the second half of 1991 is likely to continue into 1992. With this recovery, the tourism cess rate will be restored from 3% to 4% with effect from 1st April 1992. Duties on Liquors Duties on liquors are imposed to constrain the growth in liquor consumption. They need to be revised periodically to adjust for the effects of inflation. As liquor duties were last revised in 1987, I have decided to raise duties on liquors. The import and excise duties on hard liquors will be increased from $27.00 per litre to $30.00 per litre. The import and excise duties on sake will be raised from $15.50 per proof litre to $20.50 per proof litre.”
“They ensure that all carry their fair share of the tax burden. They also adequately reward effort and enterprise. I do not therefore propose to make any changes to the tax schedule. Although our economy slowed down in 1991, we achieved a satisfactory growth rate of 6.7%. This rate is above our long term target of 4 - 6%. We reached it despite the difficult economic conditions throughout the world last year. I have no doubt that the hard work and initiative on the part of our people contributed significantly to our success. I have therefore decided to encourage continued individual efforts by giving an across-the-board and one-off rebate of 5% for personal income tax for Year of Assessment 1992. The estimated revenue loss is $70 million. Rebate of Service and Conservancy Charges For citizen householders staying in rented and owner-occupied one, two and three-room HDB flats who pay little or no income tax, the Government has decided to pay to Town Councils, on their behalf, the Service and Conservancy charges payable in the month of December 1992. This is a one-off payment applicable to Singapore citizens only. It is the equivalent of the 5% income tax rebate. Tax Relief for Reservists Reservists play a crucial role in preserving the prosperity we enjoy. Their contributions therefore deserve special recognition. Last year, the Ministry of Defence (MINDEF) set up the Committee for the Recognition of the Contribution of Reservists to Total Defence (RECORD) to make recommendations. Among many recommendations made and implemented by MINDEF, RECORD also proposed that reservists be granted symbolic financial incentives. MINDEF has therefore recommended that this recognition be given at the national level in the form of personal tax reliefs.”
“As this investment income can now be identified separately, it is no longer necessary to determine it by apportioning worldwide income. At the same time, the types of expenses which could be deducted will now include benefit payments and increases in actuarial liability to policyholders. Moreover, to make the basis more equitable, the resultant surplus will be taxed at 10% on that portion attributable to policyholders. That attributable to shareholders will continue to be taxed at the prevailing corporate rate. The new basis of taxation for life insurance companies will facilitate the development of annuity and investment linked insurance products by these companies. The development of annuity is relevant and important as the population ages over the next 20 to 30 years. The new basis of taxation for life insurance companies will take effect from Year of Assessment 1993. Stamp Duty on Financial Derivatives Singapore has been developing as a centre for trading in regional securities. To cater to the increased sophistication of regional investors and the growth in interest in financial derivatives, the Stock Exchange of Singapore will soon launch trading of stock options on securities traded on the exchange. To encourage such trading, I have decided not to levy stamp duty in respect of transactions in stock options. With effect from 1st April 1992, stamp duty will also not be imposed on contract notes and instruments of transfers relating to share warrants, rights in shares and units in unit trusts. Only contract notes and transfer instruments for transactions in stocks and shares will be subject to the existing stamp duty. TAX ON INDIVIDUALS Personal Income Tax Our personal income tax rates are lower than those in many other countries.”
“To encourage the development of such services in Singapore, I propose to grant a double tax deduction to financial institutions for expenses relating to the establishment and development of approved financial activities in Singapore. This incentive will be given on a highly selective basis. It will be for a period of 5 years, and may be extended thereafter. The scheme will take effect from Year of Assessment 1993. Further details of the scheme will be announced by the Monetary Authority of Singapore. Basis of Taxation For Life Insurance Companies At present, life insurance companies are taxed on the excess of investment income over management expenses and agency commissions. Investment income includes gains from sale of investments. For companies with overseas operations, their investment income is determined by apportioning their worldwide investment income in the ratio of Singapore premiums over worldwide premiums. This basis of taxation is not satisfactory. By confining the income to be assessed to just that from investments alone and excluding premiums, the tax base will not fully reflect the profitability of the insurance company. The present basis also makes no distinction between income of the company that accrues to its policyholders as against shareholders. This means that policyholders are effectively taxed at the prevailing corporate rate. To bring the basis of taxation for life insurance business in line with that of other businesses, I propose to tax life insurance companies on their total income derived out of the Singapore business. In other words, assessable income will include premiums in addition to investment income arising from the Singapore business.”
“However, profits derived from spot currency transactions are taxed at the prevailing corporate rate. This has affected the ability of SIMEX members to undertake an effective hedge in the spot market for their customers as well as for their own account. SIMEX members need to undertake such transactions in order to hedge the risks from their currency futures positions. To facilitate corporate members of SIMEX in doing this, I have decided to extend the 10% tax concession on currency futures to profits derived from spot transactions in designated currencies. The transaction must be with a non-resident, another member of SIMEX or an Asian Currency Unit. The tax concession will take effect from Year of Assessment 1993. Double Deduction for Skill and Knowledge-Intensive Financial Activities Singapore is now a regional centre for financial services. Over the years, we have broadened the range of such services. The global financial market has, however, seen rapid innovations. To stay ahead, Singapore cannot rely on providing the traditional financial services. Competition in these has increased with the emergence of other regional financial centres. We must move on to new and more sophisticated financial services. These would include knowledge-intensive services such as financial engineering and financial research and development. The cost associated with the development of these financial services can be very high. Besides having to invest in computerisation, it is also necessary to attract talented persons with specialised expertise and experience to work here.”
“The revenue loss is estimated to be $105 million annually. Tax Incentive For Commodity Futures Market To develop Singapore into an international trading hub, it is necessary to provide traders with a vehicle to manage their risk in commodity trading. In this regard, the Trade Development Board has announced the setting up of a commodity futures exchange called the RAS Commodity Exchange. The Exchange is expected to come into operation this year. It will provide a centralised and regulated marketplace for the trading of commodity futures. To help the Exchange get off to a successful start, I intend to give it a 5-year tax exemption on its income from futures activities. Rubber futures will be the first to be traded on the Exchange. Three contracts will be traded when the Exchange opens. One of these is a new contract called RSS 3. The other two are existing contracts, namely RSS 1 and TSR 20. To promote the new RSS 3 contract, the income of corporate members of the Exchange arising from futures transactions in this contract will be taxed at a concessionary rate of 10%. These transactions must be with non-residents, Asian Currency Units and other members of the Exchange. However, income derived from transactions with residents will continue to be taxed at the prevailing corporate rate. This incentive will take effect from Year of Assessment 1993. The current tax treatment will continue to apply for income arising from transactions in the two existing contracts, namely, RSS 1 and TSR 20. Tax Incentive For Spot Transactions Undertaken by Corporate Members of SIMEX At present, corporate members of SIMEX are taxed at a concessionary rate of 10% on profits derived from trading in currency futures.”