By DAVID SANDISON
GUEST COMMENTATOR

LAST year's Budget, delivered admittedly in comparatively good times, could be said to have met expectations at the time. There was no need to bring down corporate taxes as a general proposition and in the face of a potential pick up in inflation, personal tax reductions would only have added to the risk of unwelcome retail liquidity. So tax rates stayed where they were.

Twelve months down the road, the world finds itself in a state of extreme economic distress with credit all but dried up and asset values crashing all around us. Businesses that were household names have gone down with all hands. Singapore, as a small economy almost entirely dependent on external trade, finds itself tossed around at the mercy of an economic storm that, for the time being at least, appears to be out of control and is possibly getting worse.

In his Budget speech of 2003, the then-minister for finance, Lee Hsien Loong (now Prime Minister) was well aware of Singapore's vulnerability when he observed that 'there is no safe harbour where our ship can shelter to rebuild and refit'. Clearly, the economy is on the high seas and emergency action was required from this Budget to allow the ship to shelter from the worst, and enable it to find a place to drop anchor and hunker down until the storm blows over. The fact that the Budget speech was brought forward by a month demonstrated the urgency of the situation in its own right.

Many of the targeted handouts that were announced in the speech had already been hinted at in the press, thus there were few surprises yesterday. The only uncertainty was how much the rescue package might be. The principal aim of course, was to help tide Singapore over the worst recession in its history; but the record $20.5 billion package also kept a firm eye on the need to emerge better, fitter and faster when the world economy turns around, as inevitably it will. The five components of the package were centred on creating jobs for Singaporeans, stimulating bank lending, enhancing business cash flow and competitiveness, supporting families, and building a home for the future.

As expected, the rate of the Goods and Services Tax (GST) remained untouched (although some had a tingling feeling that it might be raised). However, against expectations (but not against hope), the corporate tax rate was lowered for income earned in 2009 to 17 per cent from an already competitive 18 per cent. This, of course, is of use for those that survive the downturn, and remain profitable. It also raises the question of a possible increase in GST next year when the current measures have to be paid for, thus allowing a continuation in the transition from direct to indirect taxes.

Personal taxes

Against the expectations of many, personal tax rates remained unchanged and what was a little surprising was that the 'one-off' rebate, which was a feature of the 1990s and that many expected to be increased, was held at 20 per cent with a cap of $2,000, similar to last year. This will be seen by many as disappointing, as the tradition, and thus expectation, has been for the top marginal rate of personal tax (currently 20 per cent) to chase down to the corporate rate of 18 per cent. Those who had called for a tax holiday will be stunned, although it is not clear how serious their request could have been.

The government again though, demonstrated its ability to listen to industry feedback. For those in loss, some additional relief was given under the loss carry-back provisions which was something that was called for, although the measures announced really only scratch the surface of what was possibly needed. The effective removal of the GST issue that was plaguing Singapore funds was also something that had long been asked for. This, coupled with relaxations in the fund management incentive regime that now allows funds to flow in freely from even Singapore-based investors, will put Singapore head and shoulders above any other city in Asia and possibly the world, as a place to pool and manage funds.

Unusually, the financial services sector (outside funds) hardly get a mention, although most incentives are already well embedded and were extended last year. There was therefore little call for major movements here, although they may benefit from the funds that could flow into Singapore under the one-year amnesty for remitted foreign income.

In all, it was a generous Budget which will have the government dipping into its reserves in a meaningful way. The Resilience Package as it is called, is targeted and well thought out and while it seeks to provide stability in the storm, does not ignore the prospect of a rosier future. Hopefully, it will allow the ship to weigh anchor after the storm and get underway again in good shape.

The writer is a tax partner at PricewaterhouseCoopers Services LLP (Singapore).

This article was first published in The Business Times on January 23, 2009.