Singapore is prepared to cut its corporate tax rate further to remain competitive in the global race for investments.

Announcing a hike in the Goods and Services Tax (GST) in parliament, Prime Minister Lee Hsien Loong said Singapore might have to adjust accordingly if Hong Kong moved to lower its current rate of 17.5 per cent.

Mr Lee, who is also Finance Minister, noted that Hong Kong was thinking of introducing GST, a move that would enable its government to further trim taxes on companies.

“Hong Kong is a competition for us,” he said.

“If they do a GST, they may decide to bring their corporate tax down. We may have to follow them down,” he added.

Any cut, from the current 20 per cent, is seen as a likelier move now than from previous indications, given that there will be a bigger revenue cushion from the GST hike.

Mr lee also pointed out that many central and Eastern European countries already had corporate tax rates of below 20 per cent.

The rate in Slovakia and Poland was 19 per cent, and in Lithuania and Latvia, 15 percent.

“With competitive taxes, they will attract investments which may otherwise come to Singapore,” he said.

Mr Lee was explaining why the Government could not afford to raise direct taxes to meet future spending needs.

Extracted from "The Straits Times" Tuesday 14 November 2006

Updated December 2006