Tiểu luận tài chính công THE CONTRIBUTION OF PUBLIC FINANCE POLICY TO SINGAPORE’S ECONOMIC DEVELOPMENT

THE CONTRIBUTION OF PUBLIC FINANCE POLICY TO SINGAPORE’S
ECONOMIC DEVELOPMENT
Table of Contents


I.

Overview of Singapore economy

Singapore is one of the world's fastest growing economies. Its GDP per capita has risen to
an incredible US $60,000, making it the sixth highest in the world based on Central
Intelligence Agency figures. For a country that lacks territory and natural resources,
Singapore's economic ascension is nothing short of remarkable. Singapore has a highly
developed and successful free-market economy. It is not only low in taxation but also enjoys
a significantly open and corruption-free environment.
Singapore has based its economic development on a proactive strategy to attract FDI using
its trade openness. Since 2003, when the World Bank Group began publishing its ranking
system, Singapore has been ranked first for ease of doing business. Favorable lending to
foreign investors, a simple regulatory system, tax incentives, a high-quality industrial real
estate park, political stability and the absence of corruption make Singapore an attractive
destination for investment.
According to the UNCTAD 2016 World Investment Report, Singapore is the 7th largest
recipient of FDI in the world and the 3rd largest among the East and Southeast Asian
countries with US50 billion. The main investors are the U.S., the Netherlands, the United
Kingdom and Japan.
Singapore has a unique position in the global economy and a pivotal role as a business
epicenter in the heart of Asia. The city-state has been consistently acknowledged as a global
business hub – one that features developed infrastructure, political stability, open business
policies, a skilled workforce, the use of English as the main working language and respect for
intellectual property rights.
Many multinational companies have chosen to set up their bases in Singapore, next to

154,000 small and medium enterprises. Business owners all over the world regard Singapore
as an ideal location to grow their businesses, with many of them using the country as a
springboard to tap into other emerging markets in Asia.


II. Prominent features of Singaporean public finance policy
II.1. Singapore Tax Revenue
Table 1. Overall Budget Balance

Source: Singapore Budget 1
Figure 1. Breakdown of Government Operating Revenue in FY2016

Source: Singapore Budget2

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FY2016 Operating Revenue was S$68.7 billion. The chart was mainly occupied by several
sectors which are Corporate Income Tax, Personal Income Tax, Good and Services Tax and
collected revenue relevant to possession of vehicle.
The Total Corporate Income Tax in 2016 was S$13.45 billion, made up 19.6% of total
revenue. The Personal Income Tax, Good and Services Tax and Revenue from owning
Vehicle were S$10.48 billion (15.3%), S$10.85 billion (15.8%) and S$9.17 billion (13.3%)
respectively.
II.1.1 Corporate and Personal Income Tax
With a low headline corporate tax rate of 17%, generous tax exemptions for small-tomidsize companies, and industry-specific tax incentives, Singapore is well positioned to
maintain its economic competitiveness in today’s global environment. The Government of
Singapore provides a comprehensive package of tax concessions and incentives to businesses
whose business activities reflect the direction in which the state plans to steer economic
development.
Table 2. Tax Rate in YA

Source: Inland Revenue Authority of Singapore3
2
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3 />

Singapore is considered a tax haven because of its low personal and corporate tax rates
and other incentives for foreign investors. It levies 22% on personal incomes in the highest
tax range, defined as incomes above 320,000 Singapore dollars, and does not tax capital
gains. The city-state attracts international investment because of its strategic location as a
gateway for companies planning to expand into emerging Asian economies. The Inland
Revenue Authority of Singapore (IRAS), a legal board of the Ministry of Finance, is
responsible for collecting taxes.

Source: Inland Revenue Authority of Singapore4
Corporate Tax Rates
4 />

The corporate income tax rate in Singapore is 17%. However, the effective corporate tax
rate could be lowered by other IRAS incentives. The Productivity and Innovation Credit
(PIC) Scheme, for example, allows companies a complete corporate tax exemption if they
earn 28 million Singapore dollars per year. Start-up companies in Singapore can also take
advantage of the zero tax exemption on their first $100,000 of income for the first three
consecutive years of business. To qualify for the startup tax exemption, companies must be
incorporated in Singapore and have a maximum of 20 shareholders. One of the startup
shareholders must be an individual shareholder and hold a minimum of 10% of shares. After
the startup period, companies with incomes up to $300,000 are also eligible for a partial tax
exemption that translates to an effective tax rate of 8.5%.

Source: Inland Revenue Authority of Singapore5
Industry-Specific Tax Exemptions
Singapore also offers industry-specific tax exemptions for certain businesses. Industries
eligible for tax exemptions include foreign banks, qualifying offshore funds and global
trading companies. Additionally, banks are eligible for a withholding tax exemption on
payments to non-resident individuals, which applies to payments made between April 1, 2011
and March 31, 2021, based on agreements that take effect between those dates. Qualifying
offshore funds are also exempt from tax on specified income. Singapore defines specified
income as dividends, gains, profits and interest from traditional investments including
deposits, bonds, shares, stocks and securities. Global trading companies are eligible for
especial tax rates of 5 to 10% for five to 10 years if they qualify for Singapore's Global
Trader Scheme. Singapore typically grants Global Trader status to companies with
established track records of performance in international trade.
Low personal and corporate tax rates and other incentives for investors, short time to
process administrative work along with other factors, Singapore attracts a lot of foreign
capital pouring in the country and many big corporations choose Singapore to locate establish
their regional headquarters in the Asia Pacific region such as Facebook, Unilever, Apple,..
II.1.2. Tax revenue relevant to possession of vehicle
S$9.12 billion came from Vehicle Tax and Vehicle Quota Premium or COE Premium in
FY2016

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There are 5 main factors that would determine the price of a brand new car in Singapore.
They are the Open Market Value (OMV), the Additional Registration Fee (ARF), Excise Duty
& GST, Certificate of Entitlement (COE), and local dealers’ margin.
(1) Open Market Value (OMV)
Think of a car’s OMV as a baseline guide to the original price of the car. If not for taxes,
COE, ARF or other form of taxes, we could have bought the car at the OMV price. The OMV
prices we see are what some people in other countries are paying for the exact same car.

For example, a brand new Audi A4 has an OMV of about $32,000. In some European
countries such as Germany, you would be able to get the car at about that price.
In Singapore, it currently retails at $161,000. Why is that so? Here are the other factors
why.
(2) Additional Registration Fee (ARF)
In Singapore, all cars would be subjected to the ARF. The ARF is a form of tax imposed
on all cars during registration. The ARF is calculated based on the OMV of the vehicle.
Table 3. The calculation of ARF

Source: Dollars and Sense6
6 />

(3) Excise Duty and GST
Excise Duty is a form of tax imposed on specific goods within a country. For example, in
Singapore, we have additional taxes on goods such as alcohol, cigarettes and petrol.
The Excise Duty on cars in Singapore is 20% of OMV. Once the Excise Duty of 20% is
added to the OMV, a further 7% GST will be tax on both the amount for the OMV and Excise
Duty.
For example, a Mercedes E200 that has an OMV of $49,113 will incur an excise duty of
$9,822 (20% of $49,113) and a GST of $4,125 (7% of $49,113 + $9,822),
(4) Certificate of Entitlement (COE)
Even non-car owners would know about the COE. The COE is “market-driven” certificate
that allows a car to be driven on Singapore road for 10 years. Anyone who wishes to register
a new vehicle in Singapore must first obtain a Certificate of Entitlement (COE) COE prices
can increase steeply during period of high car demand, which in turn cause prices of cars to
increase. This method is used to limit new vehicles registered.
COE prices are currently between $40,000 and $50,000.
Table 4.

(5) Dealers’ Margin
Last but not least, the car dealers that are selling you the car would also need to cover their
own overheads and earn a profit for themselves. We call this dealers’ margin. Dealers’ margin
could range from as little as about 15% for affordable brands to as high as 50% or more for
luxury car brands.
To calculate what the dealers’ margin is, simply sum up the OMV, ARF, Excise Duty, GST
& COE. SGCarmart refers to this as the “basic cost.” We then compare the basic cost against
the actual sales price, with the difference being the dealers’ margin.
For example, a Mazda 6 currently has a basic cost of $92,520 with a sales price of
$122,888. Hence, the dealer’s margin for the car is about 33%.
(6) Carbon Emissions-Based Vehicle Scheme (CEVS)
Carbon Emissions-Based Vehicle Scheme was introduced in 2013 to encourage people to
adopt environmental-friendly cars with low carbon emissions. Depending on your car’s


carbon emission, you can either get a rebate or a surcharge, which can be viewed from the
table below7:

Source: Carsome8
Additionally, Singapore intends to implement a carbon tax from 2019 as part of its efforts
to cut greenhouse emissions, Finance Minister Heng Swee Keat announced in his Budget
2017 speech on February 20th. The tax is likely to be between $10 and $20 per ton of
greenhouse gas emissions.
The Government is trying to curb the car population by driving prices upwards and
making cars more unaffordable. With that policy, except from the tax collected from the
extraordinary fee, the authorities can limit the number of cars on road as the country are
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becoming dense. The country is also good at using tax as a tool to control the negative

externalities such as environmental issue.
II.2. Public Sector Pay
Salaries are a crucial determinant of socio-economic policy, creating a motive force for
economic growth and equality, social progress, capacity building and state management as
well as exploiting creativity potential of workers. For a decade, Singapore has been the
country with the highest per capita income among ASEAN member states, especially in
public sectors and civil services. The Civil Service is the largest employer in Singapore,
comprising about 6.5% of the resident workforce. Hence, the civil service salary scheme sets
the tone for “market rate” compensations in Singapore. This help the country own one of the
world’s leading transparent government systems.
II.2.1 Experience in reforming salary policy for Singaporean civil servants
1.

Highly competitive and reasonable salary policy

One of the prominent points in Singapore public sector pay is the high salary for civil
servants. Ministers in Singapore have the highest wages among ministers in the most affluent
countries. Despite that, Singapore decide to increase their salaries to encourage them work
efficiently. More importantly, in order to ensure the living of young and promising civil
servants and avoid brain drain, the authority has increased the salary of young civil servants
to nearly equal level of employees aged 32-35 in private sectors.
Figure 2. Pay levels of world leaders in perspective


Singapore government also increased the starting salary for senior officials (holding such
positions as Permanent Secretary, Ministerial Advisors, Ministers, Prime Minister and the
President). In addition to the fixed amount of money each month, their salary includes the
portion paid according to economic efficiency and annual job performance. This will
stimulate them to strive in their career.
Although in Singapore education levels still play an important factor in determining

starting salaries, Singaporean government has applied market standards to determine salaries
for civil servants. In order to attract talent from the private sector and to deter the corruption
that afflicts other Asian countries, the government often relies on private sector revenue to
allocate salaries for civil servants.
The salary level of civil workers hence has been increased significantly in accordance with
the low hires and high separation rates.
Table 5. The revised Civil Service salaries for the various MX pay grades in 2015
(Last two revisions were: +5% Aug 2014, +5% Feb 2012)
N
o

Job
title

P
ay
grad
e

Salary
scale

M
X9
(Sup
ersca
le)

S$11,110
– S$15,280 /

S$15,280 –
S$17,370

M
X10

S$7,000
– S$9,980 /
S$9,980 –
S$11,470

Mana
ger,
0
3 Assistant
Director

M
X11

S$4,740
– S$7,115 /
S$7,115 –
S$8,305

Assist
ant
0
4 Manager,
Manager

M
X12

S$2,945
– S$5,925

0
5

M
X13

up to
S$3,000 for
fresh

Deput
y
0
1 Director,
Director
Assist
ant
0
Director,
2
Deputy
Director

Mana
gement
Executiv


e

graduates
Source: Salary.sg
2.

A clean wage system

Singapore practices a transparent system where salaries are fully accounted for through a
clean wage set at a competitive level with no hidden perks and privileges. This is in contrast
to systems where salaries appear to be low but are in fact coupled with allowances, benefits
and perks. Such systems have come under criticism in several countries because of their
nontransparent nature and difficulties in control and accountability.
Under Singapore’s system, the total Ministerial remuneration is made up of salaries
comprising fixed and variable pay components, and medical and retirement benefits.
Ministers do not receive perks such as housing and cars for personal use. Ministers do not
enjoy tax exemptions and have to pay tax like all who work in Singapore (e.g. income tax on
all salary components earned).
3.

Policy of pay cut for Singaporean Ministers

Between 2011 and 2012, Singapore's salary committee cut millions of dollars of its
leaders’ salaries. Therein:
•

Entry Level Ministers – 37% pay cut, falling to $1.1 million a year

•

President – 51% pay cut, falling to $1.54 million a year

Speaker of Parliament – 53%, falling to $550,000 a year, and probably predicting a
decline in the fancy wig industry.
•

The cuts would be retroactive to the start of the current government's five-year term on
May 21, 2011. The salary of Congress’s members and other politicians were cut by roughly
37%. This has been the first time that Singaporean leaders. This big move was response of
such problems as 5.7% inflation rate, rising transport costs and transport breakdowns,
growing resentment at the influx of foreign workers, high property prices, growing income
inequality, infrastructure issues and the recognition of The People’s Action Party (PAP) that
they overpaid their ministers. Even though, Singapore’s Ministers remain the highest paid
over the world.
Despite the salary cuts, all cabinet members will be entitled to a "National Bonus" of up to
three months' pay if targets are met on economic growth, employment and improvement in
Singaporeans' incomes. Bonuses were already part of the previous pay scheme, which
permitted a maximum of eight months' extra pay if economic growth exceeded 10 percent but
none if growth dipped below 2.0 percent.
In particular, Singapore attaches high importance to assessing ministerial and public sector
pay for adjustment to ensure competition with the private sector. For instance, wages of
ministers and senior officials were fixed equal two thirds of the income of equivalent
positions in the private sector. After the latest adjustment, cabinet salaries had been pegged to
2/3 of the income of the top four earners in six fields: banking, accountancy, engineering,

laws, manufacturing and multinational corporations. As can be seen, Singapore's civil servant
treatment regime ranks top of the world, far greater than the United States (for example,
Singapore’s total Ministerial salaries cost $53 million a year, most expensive in the world,
based on States Times Review’s calculations in April 2017). So it can be concluded that
adopting high-paying for civil servants and ensuring the salary competitiveness with private
sectors have been the strategic option of Singaporean leaders over decades, therefore
Singapore has been able to attract and keep the most intellectually highly able working for
the government.

Figure 3. Detailed data on ministerial salaries in Singapore

Source: States Time Review
*MR1, MR2, MR3, MR4: ministerial grade from the highest to the lowest. Accordingly,
the annual pay of the Prime Minister was set at a fixed ratio to the MR4 salary.
4.

Flexibility in the salary structure of civil servants

Singapore applied a flexible wage system from July 1988 after the 1985 economic
downturn. Accordingly, the wage structure of civil servants was made up of components that


could be adjusted based on the performance of the economy. Forms of the new flexible salary
system include:
- Basic salary;
- Another portion of monthly income (Monthly Variable Component MVC);
- 13th month bonus (Non-Pensionable Annual Allowance NPAA);
- Mid-year or year-end (other annual income or Annual Variable Component AVC).
With this salary system, all first salary adjustments must be made through bonuses in

addition to the basic salary. If there is a downward adjustment, it must not exceed the midyear or year-end bonus, other monthly income (MVC). Civil servants can also look forward
to a “13th month” bonus, plus a 0.5 month at mid-year, and another variable bonus of 0.5-1
month, depending on Singapore’s economic performance for that year. That works out to be
around 2-3 months bonus for the whole year. It is possible for high performers holding key
positions in the Civil Service to receive more than the publicly announced bonus.

II.2.2 Impact of public sector pay to Singapore’s development
The high public sector pay is the key to:
1. Increase productivity as the salary is based on work performance, deemed potential
and national economic growth as mentioned above.
2. Decrease corruption in Singapore as civil servants do not dare, do not want and find it
unnecessary to corrupt.
First, Singaporean public employees do not dare to corrupt for fear of two causes: severe
punishment and confiscation of compulsory savings. Accordingly, the Singaporean
government stipulates that all civil servants must deduct part of their salaries for savings,
starting with 5% of their salaries, and then increase gradually. The higher their position is, the
larger they have to extract. This amount is only payable upon retirement. In the course of
work, if an individual commits a crime of corruption, even if the crime is at a low level, the
offender will still be charged for the savings.
Second, corruption in Singapore is extremely difficult owing to strict regulations on
property management for civil servants. Annually, public servants and officials must declare
the property of their own as well as their spouses, explain the lawful origins of the increased
property. As a consequence, if they are unable to explain the origins of increased assets, it
will be regarded as an act of corruption.
Third, Singaporean civil servants are paid highly over their expectations and the general
level of society, so they do not need to corrupt or bribe as their material life is guaranteed. In
other words, civil servants in Singapore are entitled to economic incentives, which means
they can support their families without corruption.

Accordingly, public servants sentenced to corruption in the courts will definitely lose their
jobs, and if they are retired officials, they will lose their pensions and other benefits. They
will not receive any public sector appointment in the future.

Table 6. Corruption Perceptions Index 2016

Source: Straits Times
In short, public sector pay in Singapore has played a viral role for being an essential tool
to ensure productivity, maintain qualified and disciplined workforce. In the context that many
the talents are diverted to private sectors, Singapore conversely attracts multiple brilliant
people to work in public sectors. Not only that, the labor force in public sectors is stimulated
to work hard as they fear to lose their overpaid job. These factors contribute to the economic
growth of Singapore, promote social equality, enhance the ability and efficient of the
government administration. Also, thanks to high wage policy, Singapore government can


satisfy the physical and mental demands of its people and from that, building one of the least
corruption systems over the world.
II.3 Infrastructure Investment
II.3.1. Singapore’s world-class infrastructure
Singapore went from a third world developing nation to a first world metropolis in less
than 50 years.
About 50 years ago, Infrastructure in Singapore was characterized by overcrowding in the
city, poor living conditions and obsolete technology. Without any natural resource except for
its strategic location, the country is economically dependent on trade, capital and labour
flows. Foreign capital and labour has been fundamental to the economic success of
Singapore.
To attract increasingly mobile factors of capital, information, and talent upon which the
continued economic growth of Singapore depends, the government has paid particular
attention to ensuring that immobile factors (that include land, housing, infrastructure, public

services, labour, social and political culture) complement growth.
The change in the scenario for infrastructure in Singapore did not come overnight. It was a
result of proactive and farsighted planning by the Singapore government. Singapore became a
testimony to other developing nations, in terms of infrastructure being central to
socioeconomic development.
Today, Singapore is a vibrant city and an important global business hub, with high
standards of living and clean and green environment. A world class infrastructure facilitates
delivery of information, goods and services, fuels economic growth and assists in achieving
social objectives like improved living standards and education.
Within a short span of less than 50 years, Singapore has established well-connected land,
air and sea transport systems, world-class public utilities and waste management system as
well as affordable high standard public housing. Singapore’s well-developed infrastructure is
a key driver of its economic growth. Innovative space solutions and forward planning have
allowed Singapore to adapt and grow quickly to meet the evolving needs of businesses.
Figure 4. Singapore’s World-Class Infrastructure Capabilities


Source: International Enterprise Singapore9
Singapore’s ability to transform infrastructure investments into productive assets for
economic growth and increased prosperity, as well as its capacity to undertake sustainable
urban planning, stands as an example to many developing cities and countries.
The city-state of Singapore has become a gateway to Asia and bridge between East and
West. Singapore's transformation from an underdeveloped trading post to one of the world's
most advanced ports was due to the development of modern infrastructure and a rapid

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adoption of technology. Singapore is well connected to the world by the way of top class
airport, port and telecommunication infrastructure.

It may have cost the government billions of dollars, but it was investments worth taken.
The nice thing about the infrastructure development planned for Singapore was that it tackled
not just the infrastructure solutions that facilitate good living conditions and efficient
transport of people and goods; Singapore paid attention to the infrastructure improvements
that help facilitate the flow of information. This is the reason why Singapore is now known as
a technologically–advanced country in Asia. The country has been ranked by the World
Economic Forum as one of the top economies in leveraging information and communications
technologies to boost its country competitiveness.10

II.3.2 Efficient transportation system
II.3.2.1 Land transport
Over the past decade, the Singapore Government has made a concerted effort and
considerable investment to expand the train and bus network across Singapore, with the goal
of getting at least 85% of the population from their home to destination within an hour
(“door-to-door”). This involves building new roads and subway tunnels that cut through old
estates and forests, and breathes new life into other inaccessible neighbourhoods.11
Singapore's infrastructural development has been monitored and controlled by
Government agencies. High density satellite towns were linked to the Central Business
District through expressways and a rail system.
Investment in rail infrastructure is one of the key points of the transport infrastructure
spending plan. Policymakers in Singapore paid meticulous attention to the land transport
sector: the regulation of car ownership and usage, the development of a sustainable public
transport sector, as well as the development of a comprehensive road and rail network.
The Mass Rapid Transit (MRT) system is a rail network that is the backbone of
Singapore’s public transport system. Officially launched in 1988, the MRT system currently
comprises four main lines: North-South, East-West, North-East and Circle. Additional lines12.

10 />11 />12 Land Transport Authority. (2012). Annual Report 2011/2012. Singapore: Land Transport Authority,
p. 25.

Today, MRT network is a rapid transit network spanning across Singapore, with 5 interconnected rail lines spanning over 170 kilometres in length and 102 stations (as of mid2017). It forms the backbone of public transport in Singapore, with trains travelling along
high-density travel corridors, connecting town centres to the City.13
MRT system played an important role in improving Singapore’s competiveness in
attracting higher value-added investments, especially in the financial and business sectors. It
also boosts investor confidence and have a multiplier effect on real estate value. The MRT
train system has a major benefit for real estate investors and home buyers and that is – it
ignites a huge capital appreciation and potential rental yield of properties because of its
convenient location to major important hubs in this tiny state.14
The Land Transport Authority (LTA) regulates and oversees the operation of the MRT
system. Two operators are responsible for the daily running of the MRT system: SMRT Trains
Ltd (North-South, East-West and Circle lines) and SBS Transit (North-East line)15.
The Singapore Land Transport Authority (LTA) has published its Land Transport Master
Plan that sets out its vision for land transport in Singapore.
The 2008 Master Plan set out the LTA’s overall vision of a ‘people-centred land transport
system’ that would be achieved through making public transport a choice mode, managing
road usage and meeting the diverse needs of the people.
The 2013 Master Plan16 is not a major departure from this vision and builds further on
these themes, updating them to be relevant to the changed environment. The 2013 themes are:
• More Connections – Rail will remain the backbone of the public transport system with
more connections to the MRT network provided by bus, walkways and cycle routes;
• Better service – This will be achieved through supply side measures, primarily an
expanded and more reliable public transport network, as well as demand management
approaches such as encouraging the shifting of peak travel to shoulder or off-peak periods;
and Strategic Themes
• Livable and Inclusive community – Ensuring that the public transport system makes
Singapore a more livable city. This encompasses making public transport accessible to all
residents and ensuring the transport network’s impact on the natural and built environment is
limited and managed effectively.

13 />14 />15 Land Transport Authority. (2013, May 17). Train operators. Retrieved from
/>16 />

The Singapore government expects to spend more than S$20 billion over the next five
years to almost double the train network in the city-state by 2030, Finance Minister Heng
Swee Keat said in Feb, 2017. .
The enhancement of Singapore's public transport infrastructure will put eight in 10
households within a 10-minute walk of a rail station, Mr Heng said in his Singapore
Government's Budget Statement for financial year 2017 in Parliament.17
II.3.2.2 Aviation and the strategic development of Changi international airport
1. Aviation
Investing in the right infrastructure ahead of time has been a key pillar in the success of
Singapore's airport and port for more than three decades.
The need to invest in and expand Singapore's external connectivity was highlighted by the
Committee on the Future Economy as a key part of the strategy to develop a vibrant and
connected city of opportunity.
The number of air travellers and aviation-related jobs in Singapore could more than double
in 20 years, according to a study by a global airline body in 2015. This would increase the
industry's contribution to Singapore's gross domestic product by the same quantum to an
estimated US$65 billion (S$88 billion) in 2035, said the International Air Transport
Association (IATA)18.
To much of the outside world, Singapore is best known as an international air and shipping
hub in the global transportation network. Its airport has consistently won numerous
international awards in recognition of its achievements in airport, retail and cargo facilities
and services
Singapore has established itself as a preferred jurisdiction for businesses of all sizes
to headquarter their Asian operations because of its unique advantage in geography. The
country is strategically located at the crossroads of the main trade and shipping routes of the
world, including the major sea route between India and China. Travel to most Southeast
Asian countries consists of a short air flight.

2. Strategic development of international airport Changi
Changi International Airport is a major air transport hub. A strong national airline, liberal
air policy, and bold airport infrastructure investment decisions have made Singapore a
popular base for international airline companies. In 2001, the airport was served by 59
airlines operating over 3,250 weekly services linking 139 cities in 50 countries. It handled
28.2 million passengers and 1.5 million tones of airfreight. The airport is well connected to
the rest of the island via the railway system.
17 />18 />

Changi has consistently won numerous awards for best airport (20 best airport awards in
2001). These numbers are despite its small domestic market. Changi Airport has had to
overcome the tremendous huddle of a lack of hinterland population to develop as the hub
airport in Southeast Asia.
The airport has become known for its policy of investing in infrastructure capacity ahead
of demand. Within three years of its operation, although the first terminal showed no sign of
approaching capacity, the government approved the construction of a second passenger
terminal at Changi in 1984. Terminal 2, expected to double the passenger handling capacity at
Changi Airport, was completed in 1990. Even as the Civil Aviation Authority of Singapore
celebrated the opening of Terminal 2, it announced that plans were underway for the
construction of Terminal 3.

Figure 5. Changi Airport

Source: Singapore Economic Development Board19
With the expected opening of Changi Airport Terminal 5 in the late-2020s, Changi
Airport’s passenger handling capacity will double from the current 66 mn passengers
19 />

annually to 135 mn, with the potential to increase to up to 155 mn through a satellite terminal
connected to T5 if needed.

Singapore's Changi Airport has become the most important and modern hub in AsiaPacific.

Source: International Air Transport Association (IATA)
With large area and a series of retail, service, as well as F&B stores, Changi is now not
only an airport but also the second largest shopping mall in Singapore (only after VivoCity).


This is due to the sustainable increase in the number of passengers arriving at Changi Airport
every year. Changi Airport Group (CAG) reported a record year for retail concession sales
at Singapore Changi International airport in 2016, boosted by innovative retail concepts, fast
growing e-commerce portal iShopChangi and successful campaigns.
Sales at Changi rose 5% to over S$2.3bn ($1.6bn) 20, an all-time high for the airport.
Travellers from China, Singapore and Indonesia were the top spenders at Changi airport, with
Chinese nationals accounting for 30% of total sales in 2016.
While some economists have criticized this over-provision strategy as one of the factors
behind Singapore’s low total factor productivity record in the past, airport construction
together with a liberal airline competition policy comprise two of the most important means
utilized to influence the development of airline networks. A comparative study of the five
major airport hubs in Southeast Asia describes a multi-hub system in which several large
hubs vie for intraregional and long haul traffic. Within this system, Singapore is predominant,
enjoying a commanding lead over both Kuala Lumpur and Bangkok in terms of international
airline capacity. An overprovision strategy is clearly inconsistent with short run efficiency
considerations. However investing in capacity far in advance of actual need represents a
strategic move to maximize long run growth and maintain its position as the leading
Southeast Asia hub airport by discouraging competition or deterring entry.
III. How can Vietnam learn from Singapore
III.1 Corporate income tax rate and vehicle tax
Vietnam has many changes in tax policy, including reducing corporate income tax to 22%
(2014) and 20% (2016). However, in comparison with the countries and territories, in which
many FDI enterprises invest in Vietnam (such as Singapore, Hong Kong, Taiwan). The

corporate tax rate is still quite high. It could not only create a force for the enterprises to
transfer profits to parent companies abroad through price transfer mechanism but also limit
the competitiveness of Vietnam in attracting foreign investments.
Vietnam should reduce corporate income tax which could increase the tax revenue. The
tax revenue could decrease in short time by reducing tax rate, however, this reduction could
increase the accumulation, increase investment, reduce tax fraud, tax evasion in many forms.
Vietnam needs capital for development investment, reducing the corporate income tax rate
will create a dynamic and efficient business environment that will attract more foreign
investment.
Relating to Vehicle tax, Vietnam can learn from Singapore with higher tax on vehicle.
According to the National Traffic Safety Committee, since 2016, traffic congestion has
become more and more frequent and which are on the rise, especially in two Vietnam’s
largest cities: Hanoi and Ho Chi Minh City. Millions of vehicles take part in the
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