Delivering the national budget in parliament, Lee, who is also finance minister, said rates for top earners would be reduced from 22 percent to 20 percent over two years.

Those earning more than S$320,000 (US$200,000) annually will pay 21 percent in taxes for income earned this calendar year, with the rate dropping to 20 percent in 2006.

Rates for those earning $160,001 to $320,000 will be cut from 19 percent to 17 percent, while cuts for the lower income brackets would range from 0.5 to 1.0 points -- all staggered over two years.

People earning $20,000 and below per year do not pay income tax.

The cuts will result in taxpayers' savings totalling $460 million over two years.

"With this change, Singapore will have one of the most competitive personal income tax regimes in the world," Lee said.

He added the tax cuts will make Singapore "more attractive to internationally mobile talent," referring to foreign workers.

The government trimmed corporate tax rates last year but deferred cutting personal income taxes due to an uncertain economic outlook.

However, the economy expanded 8.4 percent in 2004, its strongest growth in four years. Although growth is expected to moderate to 3-5 percent this year, the government regards that pace as a more sustainable expansion.

Singapore has positioned itself as a regional manufacturing hub but is facing a growing challenge from its fast-rising neighbours.

With a population of only 3.2 million people, the country is also in a race to attract skilled foreign workers and professionals to staff its factories, banks, and other industries.

In addition, some 750,000 foreigners live in Singapore.

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