S'pore to reduce biz tax, increase R&D

Government delivers annual budget, outlining plans to create an environment conducive for companies of all sizes to base their operations in the country.
Written by Eileen Yu, Senior Contributing Editor

SINGAPORE--The government has unveiled its budget plan for the year, charting a strategy that it said would create an environment that is more conducive for businesses of all sizes to base their operations in the island-state.

Delivering his speech earlier today, Singapore's Second Minister for Finance Tharman Shanmugaratnam said the corporate income tax rate will be reduced by 2 percent to 18 percent. "We have to press ahead in our efforts to create a vibrant and support environment for enterprises, big and small," he said.

Tharman described a new generation of local companies that are at the leading edge of technology, "fleet-footed" and "unafraid" to start out early in the corporate world.

"We are also seeing the rise of a new breed of players in the form of global SMEs (small and midsize enterprises)--much smaller than traditional multinationals--sometimes run by small groups of individuals, rooted in one place but taking advantage of globalization to expand rapidly," he said. "Some of these are fast-growing small companies, or 'gazelles', as they are called in Silicon Valley."

He noted that more of these companies are now making their way to Singapore. QXSystems, for example, relocated from Finland and the United States to set up base in the island-state, he said. A provider of virtual offices, QXSystems now owns five companies worldwide and is headquartered in Singapore.

While they may not have the deep pockets capable of making investments similar to the size MNCs make, Tharman said that these global SMEs "add vibrancy to the economy" and boost demand for IT, logistics and financial services.

The 2 percent cut in corporate tax should also help businesses offset the impending increase in GST, from 5 to 7 percent, and in the employer's contribution to the Central Provident Fund (CPF) by 1.5 percent. The CPF is Singapore's social security savings plan for Singaporean employees. Both increases will take effect from Jul. 1, 2007.

Apart from trimming the corporate tax, the government will also be granting various rebates to startups and SMEs totaling S$100 million (US$65 million). One of these initiatives includes a grant for SMEs to support up to 50 percent of GST (goods and services tax) registration-related costs such as hardware, software, Internet connection, and IT implementation consultancy and training.

Money in R&D
Tharman also identified research and development (R&D) as a key focus area for the government. It plans to invest 3 percent of the nation's GDP (gross domestic product) a year in R&D by 2010, compared to 2.4 percent in 2005.

He added that for this year alone, the government expects to invest S$2 billion (US$1.3 billion) in R&D.

"Over time, we will build up a critical mass of top-rate researchers in Singapore, who will create new intellectual property in our research institutes, universities and hospitals, and will bring in new technology-driven activities which will spin off benefits to the rest of the economy," the minister said. "Our investment in R&D is critical, for Singapore to be a leading Asian hub for high-value, knowledge-based industries; even as Beijing, Bangalore and other cities catch up."

Tharman also underscored the need for workers to renew their skills and keep pace with a "constantly changing employment landscape". Globalization, he said, has created new challenges for Singapore, which faces a "worsening income distribution".

He explained that the widening income gap is the result of countries such as China and India, that have emerged to offer low-cost labor.

"Companies have more choice on where to invest, locating their plants where they can get the lowest cost or best workers or latest technology," Tharman said. "At the same time, technology has continued to advance, relentlessly, in every sector and industry."

Technology, he said, is making many types of workers redundant and there is increased demand for workers with high skills and knowledge.

To offer some relief, the Singapore government will look at providing rebates to encourage workers to "renew their skills" and take up post-diploma courses in areas such as infocomm security, semiconductor and logistics technology. Tharman said the government will subsidize 80 percent of the cost of such training programs, starting from this year's intake.

"The Intelligent Nation 2015 Masterplan, estimated to cost S$4 billion (US$2.6 billion), is a major step forward in our economic infrastructure," he said. Also dubbed iN2015, the 10-year infocomm roadmap encompasses initiatives across various industry segments such as education, government and financial services, and includes plans to build a nationwide wired and wireless broadband network.

Tharman said: "We will make Singapore a center for creating and commercializing new media technologies, as well as a whole array of digital content and services in areas such as healthcare, education and games on demand.

"We are already rolling out Wireless@SG… The pervasive nature of our IT infrastructure will also encourage any Singaporean to take full advantage of connectivity to the world, or even to create something new and take it to market."

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