In his Budget Statement for the Financial Year (FY) 2007, Second Minister for Finance, Tharman Shanmugaratnam announced a two percentage point reduction in the corporate income tax rate to 18% to sharpen Singapore’s competitive edge.
Corporate tax rate will be balanced against a number of revenue raising provisions such as 1,4 percent increase in employer contribution to Central Provident Fund, to 14,5 percent and a GST rate increase from 5 percent to 7 percent. Economic prospects for Singapore in the next 10 years seem to be excellent. The economic growth is solid, job creation rate is growing, venture capital funds are rising as well. Inflation targeting policy has been successful as inflation rate has been kept steadily below the critical rate. The financial sector is flourishing as Singapore has become a global financial oasis. When taxes on profits were slashed, the foreign direct investment has poured in. Singapore still remains an attractive location for foreign investors.
Tax news reports that;
"...the injection of an additional S$500 million into the R&D Trust Fund administered by the National Research Foundation (NRF), and a significant increase in the partial tax exemption threshold from S$100,000 to S$300,000, which would be especially helpful to SMEs. As a result of the latter measure, almost 80% of SMEs will pay tax at effective rates of less than 10%, making Singapore one of the most competitive locations internationally for SMEs."
The budget has provided numerous incentives for the growth of service sector. The government aims to make Singapore a hub for global philantropic organizations and says it will remove a rule that currently required charities to spend at least 80% of their annual receipts in Singapore within two years to qualify for income tax exemption.
Employment regulation has been reduced. In order to help low-wage workers, the government did thankfully not rely on minimum wage increase but on cutting contribution rates in order to make employment growth faster and employment easier;
"The principal target group of the WIS Scheme are full-time workers above the age of 45 and who earn S$1,000 or less. A worker earning S$1,000 a month will get S$100 of WIS, which is a 10% supplement. The WIS will also be extended to those above the age of 35 who earn S$1,500 or less, but at a lower rate."
It is expected to see the Singaporean economic growing extending from 4,5 percent in 2006 to 6,5 percent in 2007. Fiscal deficits has been reduced from S$2,9 billion to S$1,3 billion. The Finance Minister expects a S$1,1 billion budget surplus in 2007. excluding Special Transfers and tax changes. After taking these into account, the Budget is expected to be in deficit by S$0.7 billion. Shanmugaratnam, the Finance Minister assured Members of Parliament that the deficit could be fully financed by funds accumulated within the current term of government.