Media Division, Ministry of Information & The Arts, #36-00, PSA Building, 460 Alexandra Road, Singapore 119963, Tel: 3757794/5

ADDRESS BY DR RICHARD HU, MINISTER FOR FINANCE, AT THE OFFICIAL OPENING OF REVENUE HOUSE ON SATURDAY, 11 JANUARY 1997 AT 9.35 AM

Ladies and gentlemen,

Good morning.

Five years ago, we set out to build a Revenue House that would be an "intelligent building", employing state-of-the-art technology and affording both comfort and convenience to taxpayers and staff alike. Today, I am happy to note that this goal has become a reality.

Revenue House brings together the various tax divisions of IRAS, as well as the Customs and Excise Department. Together, they account for more than 70% of Government's revenue collection. Revenue House has brought about greater convenience to the public as they can now settle all their tax and customs matters under one roof.

This year is also the 50th anniversary of tax administration in Singapore. Tax administration has certainly come a long way since the Income Tax Department was first set up in 1947. In the first year of income tax operation, only 70,000 tax returns were issued and just over $2.5 million collected. With the introduction of GST, IRAS now administers 7 major taxes contributing a total tax revenue of $15.3 billion in 1996.

Government has always practised prudent fiscal policy. Sound public finances and broad-based, low tax regime have enabled us to build the infrastructure, pay for essential public services, housing, education and health care and set aside savings for investment and future needs.

Though Government's Operating Revenue has been increasing over the years, as a percentage of GDP, it has fallen over the last few years to about 20%. This is lower than the corresponding figures for the G7 countries. What this means is we are not over-taxing our economy.

Our effective and competent tax administration has been an important contributing factor to this healthy state of affairs. A good and effective tax administration must be responsive to taxpayers' needs, firm with taxpayers' compliance and professional in implementing tax laws. We have also kept our tax system simple for taxpayers to comply and conducive for businesses to thrive.

An important cornerstone in our economic development has been Government's selective use of tax incentives to promote and nurture the economy. Incentives are targeted at those sectors which are identified to generate substantial economic spin-offs and long-term growth prospects for Singapore. The effective and judicious implementation of these incentives by the tax administration and other economic agencies like the EDB, has contributed to the economic development in the last few decades.

In the 1960s, Government faced the urgent task of providing sufficient new jobs. The pioneer incentive scheme was introduced to attract multi-national corporations in labour intensive industries. To attract the capital investments, generous depreciation allowances were also given.

The success of the industrialisation programme helped to stem unemployment by the early 1970s. Our economic strategy shifted towards targeting higher value-added industries such as pharmaceuticals, precision instruments, petroleum and other chemical products and service industries like banking and finance, tourism, shipping, transport and communications. Tax incentives were accordingly tailored towards attracting these industries.

Singapore entered the 1980s with a broader, more diversified economic base and greater confidence. But it faced increasing competition from other Asian countries which had lower labour costs. Recession in the developed countries in the early 1980s also gave rise to protectionist backlash. We had to accelerate our transformation to a skills and knowledge-based economy.

Hence, tax incentives, amongst other tools, were used to help facilitate the restructuring of our economy. Emphasis was placed on high value-added products such as integrated circuits and computers, industrial research and development and improvement in productivity. To promote Singapore as a regional hub for headquarters activities, the Operational Headquarters (OHQ) incentives scheme was introduced in 1986.

In order to sustain continued growth and prosperity, Singapore started to spread its wings into the regional economies in the early 1990s. Various measures were taken to actively encourage local businesses to venture abroad via direct investments and joint ventures. To prevent hollowing out of the Singapore economy, new incentives were introduced to facilitate the repatriation of profits from overseas ventures. Constant fine-tuning of existing incentives were made to ensure they remain relevant to local businesses. Additional incentives were also given to encourage the development of newer and more sophisticated financial services.

In the implementation of these incentives, we have been mindful of the obligations under our tax treaties. We have not allowed our tax system to be exploited by investors wishing only to take advantage of our tax incentives to indulge in transfer pricing.Our tax specialists pay particular attention to this when they review the tax incentives cases. Tax incentives are granted only to investors who engage in active businesses that can generate substantial economic spin-offs for Singapore. We have also co-operated and will continue to co-operate with our treaty partners to stem any attempts by investors to abuse the privileges in the tax treaties.

We will continue to fine-tune tax incentives to promote high value-added activities, create new niches and encourage businesses and individuals to take risks and seize opportunities for investments. While we have used tax incentives judiciously to support our economic goals and strategies, increasingly we find that other countries are offering similar or even better incentives. So we have to adapt and look for alternatives, such as equity participation, to supplement tax incentives in attracting the desirable activities.

Our tax officers must be nimble and professional in administering the tax laws. They must see businesses as their partners. They must be responsive in adjusting and creating the conditions that will allow Singapore to stay ahead of the competition.

In the past 50 years, our tax administration has played an important role and contributed to our economic development. I am confident that they will continue to contribute to the further growth of Singapore.

Finally, I am happy to be here today to officially open Revenue House, the new home of our tax administrators.