By Robin Chan

SINGAPORE may have cut its corporate income tax rate to a relatively low 17 per cent, but it is not a tax haven, Senior Minister of State for Finance and Transport Lim Hwee Hua said yesterday.

That is because the Republic has a strong rule of law, and companies based here have concrete business activities. This is unlike other tax havens, which tend to attract 'mailbox companies', which are shell companies set up to avoid taxes.

Singapore is also considering adopting an internationally recognised standard for the exchange of tax information, she said.

Mrs Lim was responding to Mr Inderjit Singh (Ang Mo Kio GRC), who had asked whether lowering the corporate tax rate from its previous level of 18 per cent would increase the perception of Singapore as a tax haven.

'President (Barack) Obama has in fact recently announced that he will take drastic measures against countries that fall in his tax haven list. This may put Singapore in a precarious position vis-?-vis the US,' Mr Singh said.

Responding to him, Mrs Lim said that while Singapore's corporate tax rate of 17 per cent is competitive, it is by no means among the lowest in the world.

She cited examples of lower rates in tax regimes like Romania (16 per cent), Ireland (12.5 per cent) and Bulgaria (10 per cent). Hong Kong, which she did not mention, has a tax rate of 16.5 per cent.

In any case, Singapore is a substantial manufacturing and services economy with 'real firms', she said.

And unlike tax havens, Singapore also has a reputation for strong rule of law and a network of 60 tax agreements with other economies.

Mrs Lim revealed that Singapore is looking at adopting the Organisation of Economic Cooperation and Development's (OECD's) standard for transparency and effective exchange of tax information, which was endorsed by a United Nations committee of tax experts last October.

'We will be engaging the OECD and the industry to study this OECD standard with a view to endorsing it,' she said.

There is no one definition of a tax haven or a definitive list of tax havens, but the United States Government Accountability Office has identified some common characteristics, including having no or nominal taxes, ineffective information exchange with foreign tax authorities and a lack of legal transparency.

The same report, which was released last December, showed that a National Bureau of Economic Research working paper considered economies such as Singapore, Ireland, Hong Kong, Luxembourg and Switzerland as 'tax havens', but that the OECD does not.

On another tax-related issue, Mrs Lim rejected a suggestion from Nominated MP Edwin Khew to extend tax breaks on cars running on compressed natural gas (CNG) to 2015. CNG will be taxed at the pumps from 2012.

She said that such incentives were intended to give a kick-start to CNG vehicles and never meant to be permanent.

'Going forward, we will gradually reduce the CNG tax concessions to ensure that the adoption of CNG vehicles is sustainable on its own,' she said.

This article was first published in The Straits Times on February 11, 2009.