EXECUTIVE SUMMARY

The Prime Minister and Minister for Finance announced in his 2005 Budget speech on 18th February 2005 a series of caring and compassionate policy changes to address the needs of the less well off in our society, together with the usual tax changes.

The corporate tax rate remains at 20%. However, tax rates for individual taxpayers have been adjusted with the highest marginal rate reduced from 22% to 21% for the Year of Assessment 2006 and further reduced to 20% for the Year of Assessment 2007. The tax rates for the respective chargeable income levels will also be adjusted accordingly from the Year of Assessment 2006.

The other tax changes announced include the carry-back of tax losses for corporate and business taxpayers. Effective from the Year of Assessment 2006, tax losses, subject to a cap at S$100,000, can be carried back for one Year of Assessment to reduce the chargeable income of the previous year. 10% concessionary tax will be granted to approved companies in the capital markets. Existing tax incentives for Approved International Shipping Enterprises will be extended to include ship-leasing companies. The scope of the tax concession for the Global Trader Programme will be extended to include trades denominated in Singapore dollars from the Year of Assessment 2006. Qualifying tourism events will also be granted concessionary tax rate at 10%.

Chng Chung Hing
Senior Tax Manager
18th February 2005

KEY FEATURES

CORPORATE INCOME TAX >>
  Corporate Income Tax Rate
  One-year Loss Carry-back
  Basis of Assessment

PERSONAL INCOME TAX >>
  Personal Income Tax Rate
  Foreign Maid Levy
  Supplementary Retirement Scheme
  Filing of Individual Income Tax Return

GOODS AND SERVICES TAX (GST) >>
  Goods and Services Tax Rate
  Bonded Warehouse Scheme

CENTRAL PROVIDENT FUND (CPF) >>
  Voluntary CPF Contribution Cap

TAX INCENTIVES >>
  Approved International Shipping Enterprise Scheme
  Global Trader Programme
  Tourism and Retail Sectors
  Finance and Treasury Activities
  Wealth Management
  Capital Markets

OTHERS >>
  Baby Bonus Scheme
  Tobacco Duties
  Stamp Duties
  Estate Duties
  Foreign Worker Levy
  Charitable Organisation
  Donations
  Annual fee for GeBiz

CORPORATE INCOME TAX

Corporate Income Tax Rate

The current corporate tax rate remains at 20% with partial tax exemption for the first $100,000 chargeable income (CI) i.e. 75% of up to the first $10,000 of CI and 50% of the next $90,000 are exempted from tax, excluding Singapore dividends.

One-year Loss Carry-back

Current

Unutilised capital allowances and trade losses can only be carried forward to set off against a future year's chargeable income.

Changes

With effect from Year of Assessment (YA) 2006, a one-year carry-back of current year unutilised capital allowances and trade losses will be introduced. The main features of the scheme are:-

	-	Only current year unutilised capital allowances and trade losses will be allowed to be carried back for one YA immediately preceding the YA in which the capital allowances were granted or the trade losses incurred;
	-	An aggregate amount of up to $100,000 of current year unutilised capital allowances and trade losses can be carried back;
	-	The carry-back system will be available to all businesses, including sole proprietors and partnerships;
	-	The current requirements for carry-forward of unutilised capital allowances and trade losses will similarly apply when these amounts are carried back i.e. the substantial shareholding and the same business tests;
	-	The carry-back will be given on due claim;
	-	In line with their exclusion from the loss carry-forward and group relief schemes, Section 10E (investment holding) companies will not be allowed to carry back their losses and capital allowances.

Technical / Business Issues

Business fluctuation is unavoidable and losses incurred in bad years may negate accumulated profits earned in the past. The one-year loss carry-back will alleviate cash flow burden of businesses suffering losses during an economic downturn.

IRAS will announce details on the implementation in June 2005.

Basis of Assessment

The Ministry of Finance had decided not to implement the current year basis of assessment at this stage.

PERSONAL INCOME TAX

Personal Income Tax Rate

Current

The top marginal personal tax rate for resident individuals is 22%.

Changes

	With effect from YA 2006, the top marginal tax rate will be lowered to 21% and further lowered to 20% with effect from YA 2007.
	The marginal tax rates for all the other income brackets will also be reduced as shown in the attached table.

Technical / Business Issues

For individuals who will be taxed at the top marginal personal tax rate of 21% for YA 2006, companies may want to consider to defer the payment of directors' fees and declaration of franked dividends till year 2006. By then, the income received will not be subject to additional tax as the top marginal personal tax rate for YA 2007 will be the same as the corporate tax rate of 20%.

Foreign Maid Levy (FML)

Current

The current maximum monthly FML is S$345. With effect from 1 August 2004, the FML will be reduced to $250 if the following conditions are met:

Maximum FML relief is capped at 2 times the amount of FML paid for one maid in a calendar year.

Changes

With effect from 1 April 2005, a reduction of $50 in the FML is given to all employers.

Technical / Business Issues

The reduction in FML is to offset the higher maid wages. Working mothers may not benefit much from it, as the reduction in FML will result in lower FML relief claimable, which might not match the increase in maid wages.

Supplementary Retirement Scheme (SRS)

Current

There are separate SRS contribution caps for employees and the self-employed.

Changes

There will be a common cap based on 17 months of the prevailing CPF salary ceiling with effect from YA 2006 for employees and the self-employed i.e. for year 2005, the new cap will be based on $85,000 (17 months x $5,000).

Filing of Individual Income Tax Return

Current

Joint assessment is the default mode for married couples unless separate assessment is elected.

	Tax return packages are sent to taxpayers except for those with annual income below $20,000.
	Taxpayers have the option to file their tax returns by submitting the physical forms or online.

Changes

	Separate assessment will be the default mode for married couples with effect from YA 2005.
	No tax returns will be sent to taxpayers with annual income below $22,000.
	Taxpayers who have previously submitted their tax forms online will be given a permanent personal identification number (PIN). Taxpayers who did not submit their returns online will be receiving the paper returns as well as the PIN mailers.

GOODS AND SERVICES TAX

Goods and Services Tax (GST)

The current standard GST rate remains unchanged at 5%.

Exports of goods and the provision of international services will be charged at 0%.

Bonded Warehouse Scheme

Current

Imported goods stored in a bonded warehouse must be substantially (80% or more) re-exported.

Changes

The 80% export percentage requirement is lifted with effect from 1 January 2006.

Technical / Business Issues

The lifting of the requirement will provide logistics companies with greater flexibility in the storage and movement of goods between pre-approved warehouses.

CENTRAL PROVIDENT FUND

Voluntary CPF Contribution Cap

Current

	Voluntary CPF contributions cap are based on 12 months of the CPF salary ceiling at a contribution rate of 36%.
	The tax relief cap for CPF contributions for self-employed individuals is based on 12 months of the CPF salary ceiling at a contribution of 33%.

Changes

With immediate effect, voluntary CPF contributions cap will be raised to and aligned with the mandatory contribution cap of 17 months of the CPF salary ceiling. Similarly, the contribution rate is adjusted to 33%.

The tax relief cap on CPF contributions by self-employed will be raised from 12 months of the CPF salary ceiling to 17 months to align with the tax relief for employees .

Technical / Business Issues

Self-employed individuals can increase their CPF contributions , up to a maximum of $28,050, to maximise their tax relief.

Approved International Shipping Enterprise Scheme (AIS)

Current

All charter income (onshore and offshore) of an AIS company will be exempt from tax with effect from YA 2005. Ship leasing companies are not included in the scheme.

Changes

Ship leasing companies are now able to apply for AIS for their leasing income to be exempted from tax with effect from 18 February 2005.

Technical / Business Issues

	Shipping companies will have more flexibility in managing their fleets.
	This will assist the ship financing sector to flourish in the midst of the competition in the region.

Global Trader Programme (GTP)

Current

Only sales transactions denominated in foreign currencies will be taxed at the concessionary tax rate.

Changes

With effect from YA 2006, sales transactions denominated in Singapore dollars will also be included in the incentive and taxed at the concessionary tax rate.

Technical / Business Issues

This will provide GTP companies with the flexibility of concluding contracts in Singapore dollars to increase their trading activities.

Tourism and Retail Sectors

Investment Allowances Incentive Scheme (IA)

Current

IA is granted to companies that promote the tourism industry (other than hotels) in Singapore.

Changes

IA will be extended to flagship concept projects promoting the retail, food & beverage and entertainment sectors, for projects approved from 1 April 2005 to 31 March 2010.

Technical / Business Issues

This is to attract new investments into Singapore to revitalize the retail, food & beverage and entertainment sectors by constantly stimulating Singapore's appeal to tourists with new and innovative attractions.

Event Companies

Current

Income received by event companies is taxed at the prevailing corporate tax rate.

Changes

Qualifying tourism events approved from 1 April 2005 to 31 March 2010, will be conferred a 10% concessionary tax rate.

Technical / Business Issues

Event companies should look into bringing in more world-class events and activities to qualify for the concessionary tax rate.

Finance and Treasury Activities

	Associated companies of finance and treasury centres (FTC) in Singapore may now qualify as approved network companies.
	The list of qualifying activities and services will be expanded to include Singapore-dollar denominated transactions.
	The income derived by FTC from these enhancements will also qualify for 10% concessionary tax rate with effect from 18 February 2005.

Wealth Management

Fund Management

A 12-month grace period will be granted to start-up fund managers to meet the 80% foreign investor fund requirement.

Philanthropic Trusts

Specified income from all qualifying foreign charitable trusts will be exempted from tax. There will not be restrictions on expenditure levels or where the funds may be spent.

Capital Markets

Securities Lending and Borrowing

Income earned by approved companies, including intermediaries, in securities borrowing and lending, and from borrowing and lending local securities will be conferred a 10% tax rate.

Real Estate Investment Trust (REITs)

	Stamp duty on the instruments of transfer of Singapore properties into REITs to be listed, or already listed on the SGX, will be waived for a five-year period.
	Withholding tax on REIT distributions to foreign non-individual investors will be lowered to 10% for a five-year period.

Islamic Finance

	Double imposition of stamp duties incurred in Islamic transactions involving real estate will be removed.
	A concessionary tax rate will be accorded to payouts from “Islamic” bonds.

Commodity Derivatives Trading

Qualifying income from exchange-traded commodity derivatives will be conferred a 5% concessionary tax rate.

OTHERS

Baby Bonus Scheme – Co-savings in Children Development Account

Current

The savings in the account are to be used for infant care, childcare and kindergarten education. The table below summarises the yearly cap on parents' co-savings that will be matched by the Government. This yearly cap on parents' co-savings does not allow parents who cannot save up to the maximum in a particular year to make up for the difference in future years.

Changes

	The range of uses will be expanded to include health insurance and programmes for the early intervention of children with special needs.
	Parents can choose to contribute any amount in a year, subject to the total co-savings limit over a period of 6 years.
	Details of the above changes will be announced at a later date.

Tobacco Duties

With immediate effect, excise duties for all tobacco products will increase to discourage smoking especially among younger Singaporeans.

Stamp Duties

Relief from stamp duties on aborted transactions

Current

Prospective property buyers currently are required to pay stamp duties even if the sale and purchase agreements are subsequently aborted.

Changes

The Government will remit the stamp duties paid on bona fide aborted transactions and retain an administrative fee of $50. This change will take effect from 18 February 2005 .

Extension of stamp duty relief under Section 15 of the Stamp Duties Act

Current

Reliefs from stamp duty are for transfer of immovable property and shares between associated companies available made on or after 1 July 2000. One of the conditions is that the transferee company must be incorporated in Singapore or is a Singapore tax resident.

Changes

	The stamp duty relief has been extended to include transfer of mortgages .
	The requirement for the transferee company to be a Singapore tax resident is also removed. These changes will take effect from 18 February 2005.

Technical / Business Issues

The stamp duty relief is to facilitate companies to restructure in order to re-align their businesses to be more competitive, cost effective and efficient. By granting the relief to non-Singapore tax resident transferee company, the Government hopes to encourage foreign-based companies to invest in Singapore properties or Singapore companies.

Estate Duties

Current

Estate duty is applicable on the same assets passed from one estate to another even though the deaths occur within a short period of time.

Changes

For each death from 1 January 2006, estate duty paid on the earlier death will be deducted from the estate duty payable on the same assets assessed in the beneficiaries' subsequent death. The amount of relief granted is as follows:

Foreign Worker Levy

Current

Since 1 July 2004, the skilled foreign worker levy rate in all sectors (except domestic) had been revised from $30 to $50 per month.

The number of foreign workers that can be hired is capped at the dependency levels set by the Ministry of Manpower.

With effect from 1 July 2005, the skilled foreign worker levy will rise from $50 to $80 per month, and will be further increased to $100 from 1 January 2006.

Companies requiring more foreign workers can employ beyond the present dependency ceiling, subject to a higher levy at $500.

Charitable Organisation

Current

Charitable purposes are classified into 4 main categories: the relief of poverty, the advancement of education, the advancement of religion and other purposes beneficial to the community.

Changes

A new category, advancement of sports, has been included as charitable purposes. Income of qualifying sports group will be eligible for income tax exemption from YA 2006.

Technical / Business Issues

The extension of sports as a charitable purpose is in line with the government's policy to promote a healthy lifestyle among individuals.

Donations

Current

	Outright donations made on and after 1 January 2002 to approved Institution of Public Character (IPC), Singapore Government and other prescribed organisation qualifies for double tax deduction. Donations with naming opportunities, are only allowed single tax deduction.
	Double tax deduction is granted for computer donations made to prescribed educational, research or other approved institutions in Singapore.

Changes

For donations made on and after 1 January 2005, double tax deduction is extended to donations with naming opportunities and computer donations to all IPCs .

Annual fee for GeBiz

With effect from 1 April 2005, suppliers will have one account free when they subscribe to GeBIZ, the government's e-procurement portal. This reduces the cost of doing business with the Government and encourages more suppliers, especially local SMEs, to come forward to participate in government procurement projects.

For enquiries, you may contact the following staff:

Mr Chng Chung Hing
DID: 6531 3733      Email : chchng@stoneforest.com.sg

Ms Koh Puay Hoon
DID: 6531 3734      Email : phkoh@stoneforest.com.sg

Mr Kevin Teo (for GST matters)
DID: 6531 3731      Email : kevinteo@stoneforest.com.sg