Tax cuts may head Budget changes

Policy-makers are considering deep cuts in Singapore's corporate and personal tax rates as part of attempts to overhaul the country's economy and boost competitiveness.

It is understood that, among measures being considered for the Budget in May, ministers have discussed a progressive reduction in the corporate tax rate to 20 per cent from 24.5 per cent.

To help to offset the loss of government income, policy-makers led by Finance Minister Lee Hsien Loong are debating an increase in the goods and services tax (GST) to 4 per cent or higher from 3 per cent.

If implemented, the changes would constitute the boldest reform of the country's tax system in many years. They would also represent the core of the Government's efforts to sharpen Singapore's competitive edge and secure its attractiveness to foreign companies in the years ahead.

The high-level debate on taxation policy forms part of the work before the so-called Economic Review Committee (ERC). The ad hoc body, chaired by Mr Lee, was set up last year during the recession to draw up a comprehensive framework for the country's growth strategy. Although growth has returned this year, the ERC's remit is to secure the country's economic fortunes over the coming five to 10 years.

In particular, policy-makers have said they need to devise a strategy to respond to the rise of the mainland economy, which has drawn investment away from Southeast Asia.

Sources said ERC officials were weighing proposals to cut direct corporate and personal taxes. These reductions may be phased in over several years.