Singapore to reduce corporate tax

Singapore: Trade-reliant Singapore said yesterday it will cut corporate tax to attract foreign investment and increase the rate of its general sales tax as part of a budget aimed at tackling an income gap in the country.

Presenting the 2007-8 budget, Second Finance Minister Tharman Shanmugaratnam said the government would introduce an income-support scheme called 'workfare' aimed at providing financial support to older, low-income workers.

Shanmugaratnam told parliament he plans to raise the country's goods and services tax (GST) to 7 per cent from 5 per cent from July 1 and cut corporate tax by 2 percentage points to 18 per cent next year.

The GST increase will be used to redistribute wealth to address dramatic income disparities in the country of 4.5 million people, while the corporate tax cut aims to bolster Singapore's status as a key business centre in competition with rivals such as Hong Kong.

"As we grow the economy, we must make sure no one is left behind and all Singaporeans get the opportunity to succeed. We have to do more to help needy Singaporeans and we must do it systematically," Shanmugaratnam said.

The corporate tax cut spurred the main index on the Singapore stock exchange to a record closing high as investors bought financial and telecoms stocks, believing those sectors would benefit the most from the tax cut.

The Singapore dollar gained marginally against the US dollar.

Analysts expect the increase in the GST to fuel Singapore's generally benign inflation and, combined with healthy economic growth, prompt the central bank to maintain a modestly tight monetary policy.

The second finance minister said the key item on the budget agenda was to narrow the country's income gap.

The government of Prime Minister Lee Hsien Loong, who is also the finance minister, has come under pressure to narrow the income gap since last year's general election.

Shanmugaratnam said the 2006-7 budget deficit was much smaller than the S$2.9 billion that had been initially set a year ago.