|
Singapore
$ underpinned by tax-free savings
By Mano Sabnani, Business
and Financial Consultant
First published in TODAY
8 - 9 Mar 2003
For one, the move by the government to allow hassle-free repatriation
of
foreign income which has been taxed at a headline rate of
15 per cent. This will
lead to more companies and individuals bringing money back
home, thereby adding to the
liquidity in the Singapore dollar money market. Some of the
funds could be
quickly redeployed but one suspects the net effect will still
be to keep
local interest rates very low, relative to our neighbours..
That
would be appropriate for a financial centre which is trying
its level
best to get more companies to set up regional or world headquarters
here. Corporate tax rates have already been lowered and are
heading for 20 per cent in a
couple of years. The move to make interest income sourced
domestically tax-free will further enhance the attractions
for individuals and companies to park their funds here.
The change is being made over a few years, due to POSB's current
special status as the only bank to offer tax-free interest
income on domestic deposits. But by 2005, this will change
and all the banks will be on a level playing field, offering
tax-free interest income on all savings and fixed deposits.
That should underpin the Singapore dollar and keep interest
rates relatively low.
But for POSB and its parent, DBS Bank, it could mean tougher
competition. POSB, with its large branch network, will need
to offer Singapore-dollar depositors rates that are competitive
with those of OCBC and UOB. If it does not, it will see an
erosion of its dominant position which will, in turn, make
its extensive network seem unnecessary.
On the other hand, if POSB maintains its leading deposit gathering
capability through attractive rates, the funds will have to
be deployed profitably. Which means the DBS group needs to
strengthen its lending competitiveness and marketing clout,
in preparation for an even more competitive local banking
scene in the years ahead.
|
