On Friday, 23 February 2001, Mr Richard Hu, Minister for Finance, presented the Budget Statement for the Year 2001 in Parliament. The Budget measures aim to lower business costs and maintain Singapore's international competitiveness as a business location. This Budget Supplement highlights the key features of the Budget Statement.
Tax Changes for Companies and Businesses
A new corporate tax regime
With effect from the Year of Assessment ('YA') 2002, the corporate tax rate will be reduced by one percentage point to 24.5%.
Aimed primarily at helping small companies, a tax exemption scheme will be introduced that will help them to grow and get established. With effect from YA 2002, three-quarters of up to the first $10,000 of a company's chargeable income, and one-half of up to the next $90,000 will be exempted from corporate tax. The remaining chargeable income will be taxed at the newly lowered rate of 24.5%.
All companies, regardless of size, will enjoy the tax exemption.
However, the tax exemption will not apply to Singapore dividends received by companies. Such dividends will be taxed at 24.5%.
The Inland Revenue Authority of Singapore ('IRAS') will release further details on how the new corporate tax regime is to be applied.
The Company Stock Option Scheme
The Budget Statement also introduces the Company Stock Option ('CSOP') scheme. Under the scheme, income tax exemption will be granted for up to $1m worth of stock option gains arising from the exercise of an employee's options over a 10-year period. Out of the $1m, the first $2,000 worth of gains each year will be given 100% tax exemption. In addition, 25% of the remaining gains in a year will be exempted from income tax. The 10-year period commences from the year the employee first exercises the CSOPs.
The CSOP scheme is available to all stock options granted with effect from 1 April 2001 by a qualifying company under a Company Stock Option Plan ('CSOP plan') to an employee to acquire ordinary shares of the qualifying company. The CSOP scheme will be subject to review after five years.
The CSOP scheme will be available to all companies that meet the following qualifying criteria:
The IRAS will release further details before 1 April 2001.
Exemption of withholding tax for software payments
Payments for the following categories of software made to non-residents will be exempted from withholding tax:
This change will take effect for payments due on or after 23 February 2001.
Writing down allowances for intellectual property
Writing down allowances over a five-year period will be granted for capital expenditure incurred on the following categories of intellectual property acquired on or after 23 February 2001:
This scheme will be administered by the Economic Development Board and the Infocomm Development Authority of Singapore. Details will be released by them shortly.
Tax deduction for shares donation
Tax deductions will be granted to individuals who donate to Institutions of a Public Character (IPCs) shares which are listed on the SGX and unit trusts readily tradable in Singapore. The concession will apply to donations made from January 2001.
Reduction of property tax rate
The property tax rate will be cut from 12% to 10%. The cut will apply to all commercial, industrial and residential properties. The cut in property tax rate will take effect from 1 July 2001, when the 25% property tax rebate for commercial and industrial properties ends.
Tax Changes for Individuals
Reduction in individual income tax rates
With effect from YA 2002, the income tax rates for individuals will be reduced across all income bands. The tax rates of all bands will be reduced by between two to five percentage points. The top marginal tax rate will be reduced from the current 28% to 26%.
The following table provides a comparison of the existing marginal rates and the new marginal rates following the reduction in income tax rates.
| Income Bands ($) | Existing marginal rates (wef YA 1997)(%) | New marginal rates (wef YA 2002)(%) |
| 1-7,500 | 2 | 0 |
| 7,501-20,000 | 5 | 3 |
| 20,001-35,000 | 8 | 6 |
| 35,001-50,000 | 12 | 9 |
| 50,001-75,000 | 16 | 12 |
| 75,001-100,000 | 20 | 15 |
| 100,001-150,000 | 22 | 18 |
| 150,001-200,000 | 23 | 21 |
| 200,001-400,000 | 26 | 24 |
| >400,000 | 28 | 26 |
The $500 GST-related income tax rebate will be reduced to $250 with effect from YA 2002.
Raising the tax exemption limit for CPF contributions by self-employed
Presently, self-employed persons can claim tax relief only for CPF contributions amounting to 20% of their income or $14,400, whichever is lower. Essentially, this is only the employee's portion of the CPF contributions for employees of companies.
The policy will be adjusted so that self-employed persons basically receive the same tax benefits from the CPF scheme as both employer and employee. With effect from YA 2002, a self-employed person will get tax relief for CPF contributions amounting to 36% of his income, subject to a maximum income of $72,000. The change will take effect for CPF contributions made from this year.
Personal tax rebate
An across-the-board, one-off tax rebate of 10% on individual income tax will be granted in YA 2001, up from the 5% tax rebate for YA 2000.
Elizabeth Wong
Allen & Gledhill