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Equity Remuneration Incentive Scheme

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 per cent of their employees.

I have decided to adjust this condition so that they are only required to issue stock options or shares awards to at least 25 per cent of the company’s employees.

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.

Fixtures and Fittings Incentive

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.

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 loss.

Promoting New Financial Activities

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 per cent 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.

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.

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 per cent on the income they derive from offering insurance broking and advisory services to offshore clients.

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 five years.

Developing Maritime Hub

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 per cent or 10 per cent 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 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 Agreement.

Overseas Talent Recruitment Scheme and Not-Ordinarily-Resident Scheme 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.

Individual Taxes

Estate Duty We collect about $75 million per year on average from Estate Duty.

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.

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.

I have therefore decided to remove Estate Duty from our tax regime, with effect from today.

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 sum game.

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.

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.

Personal Income Tax

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.

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 per cent 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

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.

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. 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.

Building a resilient community

As we develop as a global city, we must build up our resilience as a community and help every Singaporean make the best of the opportunities that will come.

However, even as our economy grows and does well, we have to address two key challenges that we face together as a community.

First, we must help our lower-income workers cope with the continued pressures on their wages in a globalised world.

Second, we have to help Singaporeans save more for their retirement and prepare for healthcare needs that come with aging, so that they can look forward to the happy prospect of longer lives.

Last year we made significant moves to address these challenges.

I will outline further measures that the Government will take to help Singaporeans prepare for old age as well as measures to help the most needy and vulnerable in our society.

I will also set out measures by which we will share part of the surpluses from last year with Singaporeans.

Enhancing Financial Security in Retirement

This year, we are moving on four further initiatives to help ensure adequate savings for retirement.

Voluntary Savings

Firstly, we will encourage Singaporeans to voluntarily put aside more savings whenever they can.

We will make it easier for Singaporeans to top up CPF accounts for themselves and their family members in order to meet the Minimum Sum, and we will provide more tax incentives for them to do so.

The Ministry of Manpower will now allow members below 55 to top up their CPF savings up to the Minimum Sum. Further, employers will now be allowed to make top-ups to their employees’ Minimum Sum. To encourage topping-up of CPF accounts, I will broaden the tax reliefs currently available.

Today, there is a single $7,000 tax relief available for qualifying Minimum Sum top-ups either for oneself or family members, provided the beneficiary is 55 and above.

I will allow two separate tax reliefs - up to $7,000 for top-ups by the member or his employer to his own Minimum Sum, and up to another $7,000 for top-ups to their family members’ Minimum Sum.

Both reliefs will apply regardless of the age of the recipient when the top-ups are made.

Employers will also enjoy a full tax deduction for top-ups to their employees’ accounts.

To encourage savings to meet medical needs, I will also provide tax relief for voluntary contributions that CPF members specifically direct to the Medisave Account.

This will help more CPF members meet the Medisave Minimum Sum.

The Supplementary Retirement Scheme (SRS) provides a tax incentive for Singaporeans as well as foreigners to save for retirement outside of the CPF scheme.

Today, only employees are allowed to contribute to the SRS.

To enable employers to play a part towards the retirement savings of their employees, we will allow them to directly contribute to the SRS on behalf of their employees.

This will provide an inexpensive method for employers to provide retirement benefits without the need to set up company pension funds, which may have high overheads.

With more Singaporeans now working beyond the retirement age, we will also remove the age limit on contributions to the SRS.

LIFE Bonus From 2013, CPF members will join CPF Life scheme automatically when they turn 55 as long as they have at least $40,000 in their Minimum Sum.

The first cohort to do this will be those aged 50 this year.

We also want to encourage those with less than $40,000 as well as members who are older than 50 this year to join the scheme when they turn 55.

We have decided to provide a special bonus to the first few cohorts of CPF members who will participate in CPF Life.

These older cohorts generally earned less over their working years compared to what younger Singaporeans currently have and can look forward to.

By the time they join CPF Life, they would also have had less time to benefit from the extra 1 per cent interest that CPF members now receive on the first $60,000 of their CPF balances.

Younger cohorts will also be able to benefit from more years under the WIS scheme, which provides significant top-ups into their CPF accounts (plus cash payments).

The Government will provide a sign-on bonus for the first five cohorts of CPF members who join CPF Life, in other words, those aged 46 to 50 this year.

We call this the Life Bonus, or the L-Bonus. It will be given to members when they enrol in the scheme at age 55.

The L-Bonus is targeted at the lower and middle-income CPF members.

The L-Bonus will be given to members whose annual income when they sign on to the Life scheme is $54,000 or less, and whose annual assessed property value is $11,000 or less, which will include all HDB flats.

These make up about 80 per cent of the cohort aged 50 today, including those whose Minimum Sums are too low for them to be automatically enrolled in the Life scheme.

The amount of the L-Bonus will vary such that older and less well-off members will receive more.

For members aged 50 this year, they can expect to receive between $2,200 and $4,000.

A 50-year-old who lives in a five-room flat and earns between $24,000 and $54,000 will receive $2,200.

However, a 50-year-old who lives in a three-room flat and earns less than $24,000 annually will receive $4,000 when he joins the Life scheme. If he has $40,000 in his Minimum Sum, this amounts to 10 per cent of his retirement savings.

The youngest eligible cohort, those aged 46 today, will get around 30 per cent of what the 50-year old receives.

The Government agrees with the committee’s recommendation and will extend the L-Bonus to this group of members.

Therefore, if members have less than $40,000 in their Minimum Sum, but want to participate in the Life scheme, we will help them to do so and give them the L-Bonus as long as they are willing to make a reasonable contribution to their balances and accept lower monthly payouts.

This is particularly important for many of the women, who may have been housewives or stopped working early and do not have enough in their accounts. The L-Bonus will encourage their husbands or other family members to top up their accounts so that they can join the scheme.

We will also extend the L-Bonus to older members above the age of 50 this year who choose to opt into the scheme. They can opt in when they reach 55. But if they have already passed 55 when the scheme is introduced, they will have to opt in within a year from then.

All these older members who choose to opt in will receive the same amount of L-Bonuses as those aged 50 this year.

The Government will set aside $770 million over three years for the L-Bonuses, including $260 million out of this year’s budget.

Helping Singaporeans Meet Healthcare Needs To protect retirement savings from being depleted by heavy expenses due to catastrophic illnesses, we must also ensure that our people are adequately covered by medical insurance.

a. MOH will be enhancing MediShield to provide better coverage for patients with large hospital bills, with some adjustment to MediShield premiums in tandem.

To help older Singaporeans pay for their medical bills and their increased MediShield premiums, we will top up the Medisave accounts of all those aged 51 and above by up to $450 this year.

This will cost the Government $220 million

b. To encourage employers to provide portable medical benefits through Medisave and MediShield, we will also relax the criteria for them to enjoy tax deductions up to the higher cap of 2 per cent of their wage bill.

Beyond regular Medisave contributions, employers will now be allowed tax deductions up to the higher cap if they make ad-hoc contributions to their employees’ Medisave accounts, or if they purchase MediShield or Medisave-approved private integrated plans for their employees.

We are also setting aside more funds to help the elderly and needy.

We will top up the ElderCare Fund by $400 million this year, bringing its size to $1.5 billion.

Medifund, which supports the needy, is also being well utilised. We will top it up by $200 million this year, bringing the fund size to $1.6 billion.

Taking Care of Vulnerable

The Public Assistance (PA) Scheme applies to needy Singaporeans who are unable to work and have no other means of support.

Last year, we raised the monthly PA rates to $290.

The Government has decided to increase the monthly PA rate for a single-person household further to $330.

I will also top up the ComCare Fund by $200 million this year, bringing it to $800 million.

Surplus Sharing 2007 was a good year for Singapore. Our fiscal position is strong. We can therefore afford to share some of the budget surplus with Singaporeans.

I will distribute the surplus to all Singaporeans, but with particular focus on the lower and middle-income groups and older Singaporeans.

I had earlier in the speech announced top-ups to the Post-Secondary Education Accounts and Medisave accounts, as well as Personal Income Tax rebates, as part of this surplus sharing exercise.

I have also decided to give Growth Dividends to all adult Singaporeans, to be paid out in two instalments in April and October this year.

Those who have already signed up for their GST credits will automatically receive their Growth Dividends.

We will give the needy more, using the same framework that has been used for GST Credits.

A lower-income Singaporean living in a three-room HDB flat or smaller, will receive a Growth Dividend of $400. This is on top of the $250 in GST Credits that he will be getting this year.

The majority of Singaporeans, who live in other HDB flats and do not have high incomes, will receive a Growth Dividend of $300 (on top of $200 in GST Credits that he will get this year).

I will give older Singaporeans, those aged 60 and above, more. Most older Singaporeans will receive one and a half times what other Singaporeans will receive. As with the GST Credits, we will include everyone. Those with Annual Incomes more than $100,000 will receive a Growth Dividend of $100.

We will give an additional dividend to those who have served and are currently serving national service.

NSmen, ex-NSmen and NSFs including those below 21, will get an additional $100 of Growth Dividends, to recognise their contributions to our nation.

The Growth Dividends will cost the Government $865 million this year.

For government pensioners, the Government has decided to increase the Singapore Allowance further by $20 per month, and raise the gross pension ceiling from $1,150 to $1,170.

This will give an additional $3 million a year to pensioners residing in Singapore.

Last year, as part of the GST Offset Package, we provided CCCs, self-help groups and VWOs with extra funds ($10 million over five years) to help needy families.

This year, we will give these groups an additional $10 million. This would give them an extra $20 million over the five-year period.

Taking together all the measures in this year’s surplus sharing package a retiree household in a two-room flat will receive $2,100 (Growth Dividends and Medisave Top-ups).

This is on top of the $1,300 that they will also be receiving this year as part of the GST Offset Package introduced last year.

Take a middle-income family living in a five-room flat, which is also typically larger. Two working parents with two children, one in primary school and one in secondary school, and one grandparent. They will receive a total of $2,500 ($1,150 in Growth Dividends, $900 in PSEA top-ups, $450 Medisave top-up).

This is on top of the $1,900 that they will also be receiving this year as part of last year’s GST Offset Package.

In total, we will be giving out $1.8 billion worth of benefits to Singaporeans as part of this surplus sharing package.

Conclusion

Going Forward with Strength

This Budget is about developing the capabilities of our people and enterprises, so that we stay in the top league of global cities for years to come.

The Budget is also about our social resilience - holding together as a community, and providing assurance for Singaporeans as we age.

This Budget seeks to make innovation pervasive in our economy.

Whether we succeed as an economy, and whether we remain a resilient society, however, will not depend on how much we hand out, how much we top-up each year, or how large the bonuses are.

We will ultimately succeed and remain a country that all Singaporeans feel proud of, if we continue to be a place where every Singaporean can aspire, where there is opportunity to develop every skill and talent, and where everyone does his utmost to do better and surprise with his abilities.

That is how together, we will stay ahead, keep amazing the world and achieve a better quality of life for all Singaporeans.

Five ways to fight inflation Singapore’s five-pronged approach to battling the rising cost of living:

RISING SING$:

Since last October, the Singapore dollar has been allowed to appreciate slightly faster.

Had the Singdollar not been allowed to appreciate in the past two years, inflation in the last quarter would have averaged 6.5 per cent instead of 4.1 per cent.

MORE FOOD SOURCES:

The Government is helping importers to buy food from new sources overseas, which will minimise price hikes when the supply from any one country is cut off.

People are informed about cheaper food choices and substitutes.

OWNING YOUR HOME

Most Singaporeans own their homes, even those in the lower-income group, who receive heavy subsidies to do so.

They are thus protected against inflation, because they do not have to face rent increases.

In the United States, about one-fifth of older Americans rent their homes, and rent makes up almost a third of their monthly expenses.

GOVERNMENT AID:

Singaporeans struggling with the cost of living get direct aid from the Government.

Aid schemes also aim to help the needy get a job and encourage them to stay at it, upgrade themselves and support their family members.

Singapore does not favour price controls on essentials as it would lead to hoarding, black markets and even more problems for ordinary people.

Those unable to work can seek Public Assistance relief.

When there are good Budget surpluses, gains are redistributed to Singaporeans, with more going to the elderly and the needy.

STRONG ECONOMY

Keeping the economy competitive and building up its capacity for good growth: This is at the heart of Singapore’s approach to dealing with global inflation.

The strong economy last year was the reason why real income rose for most Singaporeans.

Even the bottom 20 per cent saw their real total income going up by 5 per cent as more family members found jobs.

Source : Straits Times - 16 Feb 2008