Business | Economy
Singapore budget disappoints as income taxes are held steady
Singapore unveiled a budget on Friday that unexpectedly left personal income tax steady and offered no immediate remedy to rein in inflation at a 25-year high.
- Reuters
- Published: 00:32 February 16, 2008
Singapore: Singapore unveiled a budget on Friday that unexpectedly left personal income tax steady and offered no immediate remedy to rein in inflation at a 25-year high.
Singapore expects its economic growth to slow this year, and a sharp rise in living costs has put its competitive edge over rivals such as Hong Kong under threat, stoking investor hopes that the government would cut income tax to attract investment.
Finance Minister Tharman Shanmugaratnam acknowledged that rising living costs were a big concern, but said there was a limit to how fast the Singapore dollar, its main monetary policy tool, could rise without hurting economic performance.
Singapore kept the top personal tax rate unchanged at 20 per cent, surprising analysts who had expected the rate to be brought down to 18 per cent in line with corporate taxes.
Gap widens
"The fact that Hong Kong has cut personal income tax in last year's budget has somewhat widened that gap. It's something to watch closely," said Citigroup economist Chua Hak Bin.
Hong Kong's top effective personal income tax rate is 16 per cent. The former British colony may cut income taxes further when it unveils its budget on February 27, analysts have said.
"For most taxpayers, Singapore's income tax regime is already one of the most competitive in the world," Tharman told parliament yesterday.
"We will not be making any further move on personal income tax this year."
Singapore's budget surplus is set to be S$6.4 billion ($4.5 billion) for the fiscal year ending March and is expected to be S$800 million in deficit for the 2008-09 fiscal year.
Singapore, a tiny island of 4.6 million people, has in recent years turned itself into big private banking centre, catering to Asia's growing legions of millionaires.
The government's budget abolished estate duty, or death tax, to become more attractive to wealthy individuals, as well as offered a one-off tax rebate of 20 per cent capped at S$2,000.
Incentives
Other incentives included tax incentives for start-up companies, tax credits on foreign-sourced income, and a five per cent concessionary tax rate for offshore Islamic insurers.
"There is not much in this budget for the corporate sector," said Peter Tan, a partner at PricewaterhouseCoopers in Singapore.
He added that the removal of the estate duty will help big foreign investors in Singapore's residential property market.
The Singapore dollar initially weakened on Tharman's speech but clawed back losses later in the session.
The stock market closed 1.4 per cent higher, outperforming other Asian markets.
The central bank adjusts monetary policy by buying and selling the Singapore dollar against a basket of currencies, rather than setting interest rates.
It has a policy of a gradual and modest appreciation in the Singapore dollar.
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