income tax Income tax was first introduced in Singapore in 1948 by the British colonial government, and is levied on incomes derived or received in Singapore by individuals and corporations. There is a one- year lag in income tax payments, as the tax liability in a given year is based on the previous year’s income.

The nominal rates for resident individual income tax have been decreasing since the 1980s. In 2005, the rates ranged between 0 per cent and 22 per cent. To help attract and retain highly skilled individuals, the top marginal income tax rate is due to be further reduced to 21 per cent in year of assessment (YA) 2006 and then to 20 per cent in YA2007.

From YA2003, non- residents have enjoyed a lower flat tax of 15 per cent on their gross income (which do not enjoy deductions for tax relief), or resident rates, whichever are higher. To keep pace with other countries which have lowered their corporate tax rates— such as Australia, Ireland and the Netherlands— the corporate income tax was also lowered, from 24.5 per cent in YA2002 to 20 per cent in YA2005. To meet various socio- economic objectives, a wide range of deductions and tax incentives are also available.

Since 2005, the taxable annual income threshold for salaried employees has been $22,000. More than two- thirds of working adults in Singapore do not pay any income tax. To bridge the resultant shortfall in government revenue, the Goods and Services Tax (GST) was increased from 4 to 5 per cent on 1 January 2004.