Singapore will probably announce cuts in personal and corporate income taxes to stem the exodus of manufacturers to lower-cost countries such as China and Malaysia and attract new businesses.
Finance Minister Lee Hsien-loong will cut the corporate tax rate by 2 percentage points to 22.5 percent, economists and investors predicted. The top personal tax rate, now 26 percent, may be lowered by a similar amount when Lee, who is also deputy prime minister, unveils Singapore's budget at 2pm today.
A government panel last month proposed cuts to taxes and fees as part of a broader effort to attract international corporations, spur entrepreneurship and overcome Singapore's dependence on exports of manufactured goods. Plunging exports of semiconductors and other electronics last year pulled the island of 4 million into its worst recession in 38 years.
"There's a pressing structural issue overlaying Singapore's future -- can it compete with North Asia or Malaysia?" said Chong Yoon-chou, a director at Aberdeen Asset Management Ltd, which manages US$4.5 billion in stocks and bonds.
As wages and costs rise, Singapore's role as a manufacturing and shipping center is under stress. Meanwhile, companies are shifting their focus from southeast Asia after China joined the World Trade Organization, a move that offers more access to the world's most-populous market and a base for low-cost production.
Taiwan's Evergreen Marine Corp (長榮海運), a unit of the world's No. 2 shipping line, said it would move from Singapore to Malaysia's Tanjung Pelepas, where fees are lower. Royal Philips Electronics NV, Europe's largest consumer electronics company, will move its Asian management from Singapore to Hong Kong.
Singapore's government is under pressure to stem job losses.
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