1. Tax Incentives for Investments in Singapore
Tax incentives have been an integral part of Singapore's economic development strategy since the 1960s. For more than 30 years, tax incentives have been used to attract investments and create jobs. Now we are the focal point for foreign investments, research and development and services in Asia. Over the years the government has introduced a wide range of tax incentives for a balanced economic growth of the various business sectors. This paper analyses how these incentives play a part in attracting foreign capital inflows to enhance the financial and industrial sectors in Singapore and their effectiveness in achieving our goals.
The purpose of this research is to gain an understanding of the tax incentives scene in Singapore, how it works and it effectiveness in achieving our aim of being a vibrant and robust global hub of knowledge-driven economy.
3. Our Research Questions for this Study
As part of our research, the following questions were asked to direct us on our study: • What are the tax incentives available under the ITA, EEIA and DTA to attract foreign capital inflows? • How effective are these tax incentives?
We derived our information from books, online journals and other internet resources.
1. The Birth of the Income Tax Act, EEIA and DTA
From a small fishing island to a cosmopolitan country within a span of 44 years is what Singapore has become today, with per capita GDP equal to that of the leading nations of Western Europe (Central Intelligence Agency, 2008). As a small island with limited, or rather, no resources to depend on, we have simply taken the world by surprise through the phenomenal economic growth that has taken place in a short period of time (Fordham, 1992). Our only resources are fish and deepwater sea and despite all the limitations that we were faced with, we have secured a place in the world map as the leading financial, educational, services, manufacturing and research and development hub. Then, “what is the clandestine of our achievements?” is the question that arises in all our minds.
After being separated from Malaya, the government’s ambitious plans for the country to be industrially developed seemed too far-fetched especially with no natural resources to call its own (Fordham, 1992). It did not, however, relent to the fact that achieving its goals is uncertain now with its given economic state. Its leaders knew at that time Singapore needs to promote investment in new industries so that its goals can be achieved. Being under developed and with no achievements or resources to call its own, it was a palpable fact that Singapore had to make radical changes to attract foreign investors,. This is when tax incentives were spotted as a viable option to magnetize foreign capital inflows. The pre-existing Income Tax Act (1948) was evaluated to see how tax incentives could be integrated to accomplish these aspirations.
Along with this, in 1967, the Economic Expansion Incentives Act (EEIA) was first introduced to solidify the expansion and development programs that were being carried out by the Economic Development Board (Fordham, 1992). In early 1960s, Singapore recognised the need for a dynamic manufacturing sector and export policies to draw MNCs so that we could be used as a production base to export goods worldwide. As a result of these aims, EEIA was introduced to grant tax benefits to manufacturing companies setting up production in pioneer areas in Singapore (Fordham, 1992).
The development of international trade and multi national corporations has increased the issue of double taxation. As a company or individual looking beyond your own country for business opportunities and investments they would naturally be concerned with the problem of double taxation. Consequently they would...