Singapore Cuts Corporate Tax to 17% to Boost Competitiveness

By Shamim Adam and Andrea Tan

Jan. 22 (Bloomberg) -- Singapore cut corporate taxes for the second time in three years to boost competitiveness and lure investment to spur job creation amid the island’s deepest recession since independence.

The government will reduce the maximum tax rate payable by companies to 17 percent from 18 percent this year, Finance Minister Tharman Shanmugaratnam said in a budget address to Parliament today.

“It is a signal of the government’s continued and future commitment to being the best hub for enterprises, small and large, from all over the world,” he said.

The tax cut will narrow Singapore’s gap with Hong Kong as Prime Minister Lee Hsien Loong’s government aims to attract investment in services and manufacturing industries. Singapore had forecast fixed-asset investments to fall this year from a record in 2008 as demand weakens and companies face difficulty in securing funds for their projects.

Companies in export-dependent Singapore including Creative Technology Ltd. are firing workers as demand for goods and services ebb. More than 10,000 people were retrenched last year and a worsening economy may result in job losses tripling in 2009, reaching numbers not seen since the Asian financial crisis a decade ago, the government said.

With today’s announcement for a lower tax level, Singapore will has shaved nine percentage points off the corporate tax rate since 2000. The government reduced rates by 2 percentage points to 18 percent in 2007.

Hong Kong last year lowered its company tax rate by 1 percentage point to 16.5 percent.

Fixed-asset investments in Singapore may total between S$10 billion ($6.7 billion) and S$12 billion in 2009, declining from S$18 billion last year, the Economic Development Board said Jan. 19. About 20 percent of investments originally slated for 2009 have been canceled or postponed, and investment commitments next year may be affected if the global economy doesn’t improve, the government said.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Andrea Tan in Singapore at atan17@bloomberg.net