Tax Reforms in Singapore Is Beneficial to the Country

Tax Reforms in Singapore is Beneficial to the Country

Singapore’s Implementation of Tax Reforms in 2002

Singapore concentrates its economy mostly on foreign investment, free trade, and high savings. When experiencing huge negative impact from the global economic depression in 2001, Singapore realized that it should not depend on the United States economy anymore. In order to revive the economic growth of Singapore, the Economic Development Board (EDB) recommended implementation of tax reforms, which demanded increase the GST while cutting corporate and personal income taxes. This strategy will bring both benefits and disadvantages to Singapore. But as a whole, it’s beneficial to the country. ➢ Benefits — Lower corporate and personal income taxes will attract more foreign investment and more talented people into Singapore. It will bring up the whole GDP of this country. Higher GST increases the savings so that Singapore can finance its own development without depending on foreign loans. ➢ Disadvantages — Higher GST put a heavy burden on the shoulders of lower income people. The gap between the rich and the poor will become even wider.

The Benefits of Tax Reforms are Based on the Good Economic System of Singapore

➢ One of the biggest ports in the world
Singapore has one of the world’s busiest ports. Thousands of ships drop anchor in the harbor, connecting the port to over 600 other ports in 123 countries and spread over six continents.1 Lower personal income taxes will attract labor force into Singapore, thus solve the problem of labor shortage. Lower corporate taxes, together with the advantage of the port, will attract foreign manufacturing firms for importing and exporting convenience.

➢ Well-educated labors
To strengthen its higher education, the EDB planned to attract at least 10 “world-class education institutions” by 2008.2 The government totally supported and encouraged higher education system. There are four official languages in Singapore, English, Malay, Chinese and Tamil. Well-educated and multi-language labors are the basis of running foreign companies in Singapore.

➢ Biomedical Sciences
In order to be independent on other countries economy, especially United States, the second biggest exporter of Singapore (see Exhibit 1), the government of Singapore wants to diversify its economy. The government set aside S$1 billion to turn Singapore into a “biopolis” of Asia. Infrastructure was built in order to meet the need of research and manufacture of biomedical sciences. These infrastructure and the well-educated labors definitely will attract global life-science manufacturing firms into Singapore.

Solutions to the Disadvantages of Higher GST Since higher GST discourages consumption especially for low-income people, government should consider waiving income taxes or providing compensation package for low-income people so that those people will not suffer a lot in this tax reform. The higher GST encourages saving at the same time, so the government can still balance its budget without deficit (see Exhibit 2). For the companies, higher GST may prevent them from importing. The government should allow taxes rebate for importing purpose so that the manufacturing firms can make full productivity without any restriction. As a return to the government, encouraging importing and exporting can bring up the GDP of this country.

Conclusion
Overall, increasing GST and decreasing corporate and personal income taxes has more benefits than disadvantages to Singapore. And the disadvantages can be avoided if the government revises this tax policy.

Exhibit 1

1 “Port of Singapore”, Wikipedia Web Site, .
2Republic of Singapore, “Bites of the Week,” MITA News, February 1-7, 2003.

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Exhibit 2