BY MICHELLE QUAH AND EMILYN YAP

Balancing the needs of the population in these still-fragile economic times won't be an easy task; this year's Singapore Budget will have to find the right mix of keeping Singapore's tax rates - and tax system - competitive and its coffers well supplied. All this, while trying to boost the local corporate scene and making Singapore more attractive to the rest of the world.

With this in mind, accountants from some of the Big Four firms are calling for tax cuts and incentives to boost Singapore's standing among its competitors. They say, Singapore needs to lower the top personal income tax rate - to something closer to the 17 per cent which is the current corporate tax rate - to draw more talent to its shores.

Existing personal income tax rates begin at 3.5 per cent and rise progressively with income to 20 per cent.

Owi Kek Hean, head of KPMG tax services in Singapore, believes the rate could be brought closer to Hong Kong's top rate of 16 per cent, making Singapore even more attractive.

David Sandison, tax partner, PwC Services LLP, adds: 'In that light, it would be difficult to contemplate how a London banker, faced with super-tax on his bonus and 50 per cent on his earnings coming up, would be able to resist the prospect of a move to Singapore.'

Wu Soo Mee, partner, human capital, Ernst & Young Solutions LLP (EY), says: 'Bringing the personal and corporate tax rates in line also means sole proprietors will not be compelled to corporatise their business for tax purposes. This will allow them to save on business expenses associated with corporatisation.'

But CIMB economist Song Seng Wun thinks the government is unlikely to reduce a major source of government revenue this year, given that its coffers have been strained in the past year from the numerous support schemes it's put out during the tough economic times.

'The government is likely to incur another year of a headline budget deficit - albeit smaller than last year - thanks to schemes it's introduced like the jobs credit scheme and so on, which will need to be funded from additional sources. So, I think it's really unlikely they will cut tax rates at this time - next year would be more likely,' Mr Song told BT.

Still, accounting experts agree that Singapore's competitiveness remains a key concern.

Russell Aubrey, EY's head of tax, says: 'We should learn from the recent crisis and adopt the right responses to not only cushion Singapore's economy from future shocks, but also lay the foundation for future growth. In short, the 2010 Budget must cement Singapore's growth story.'

This includes boosting Singapore's attractiveness to foreigners, as well as helping local enterprises enhance their profitability.

KPMG says Singapore should consider enhancing the existing Regional Headquarters (RHQ) incentives to encourage more foreign companies to set up their regional or global corporate headquarters here. And Deloitte points out the same could be done for other tax incentives, like the Standard Tier Financial Sector Incentive Scheme, the Global Trader Programme and the Financial Treasury Centre Incentive - by possibly reducing the concessionary tax rates offered.

And PwC believes the government should introduce incentives to encourage the growth of local SMEs and support entrepreneurial activity. 'Getting cash to assist start-ups and expansion is particularly important in a difficult and uncertain economic environment where entrepreneurial activity is likely to be high as a matter of necessity,' Mr Sandison said.

Deloitte sees a need to reduce the tax burden which SMEs face, by allowing companies to claim partial tax exemption on the first $400,000 of chargeable income, up from the first $300,000.

EY hopes for a possible extension of the temporary one-year tax amnesty on the remittance of foreign-sourced income, which expired on January 21, 2010.

Lim Gek Khim, tax partner at EY, says: 'Full liberalisation of Singapore's foreign-sourced income exemption regime will finally put us on par with Hong Kong and Malaysia. Lifting the conditions imposed on the repatriation of foreign-sourced income will encourage the internationalisation of Singapore companies, allow them to mobilise foreign funds and ease cash flow concerns.'

KPMG suggests more help for Singapore firms venturing abroad, in the form of tax incentives. One way is to allow interest attributable to tax-exempt dividends from overseas investments to be deducted against other taxable income and group relief for Singapore income tax purposes.

And, to encourage greater entrepreneurship, the government could change the way it extends tax deductions. EY tax partner, Choo Eng Chuan, says: 'Start-up costs are currently tax deductible from the first year income is earned. This penalises companies which start generating income early, as opposed to late, in the financial year. Extending a tax deduction for pre-commencement costs incurred in the six months prior to the date when income is first derived will be a fairer solution for start-ups which start generating income at the beginning of the financial year.'

This article was first published in The Business Times.