Lim Kim San, independent Singapore's first Minister for Finance, and Goh Keng Swee, its first Minister for the Interior and Defence, switched portfolios in August 1967. The switch was natural given that, in Lim's own words, among the most important objectives of sovereign Singapore were the need to build a defence capability, and the need to turn Singapore into an industrialized nation. What made his transfer to the Defence Ministry particularly important was the context in which it occurred: Britain's decision to withdraw militarily from East of Suez, a move that imperilled the security of fledgling Singapore.

The British Defence White Paper published in July 1967 announced the intention to reduce forces in Southeast Asia by half by 1970/71, and to withdraw completely by the middle of the 1970s. However, the British economy was in such a parlous state that the pound sterling was devalued in November 1967. Now, London's policy was to put British economic interests ahead of its global commitments. The consequences of that shift were soon apparent in the announcement of an accelerated timetable for military retrenchment. The British government declared in January 1968 that its forces would withdraw from East of Suez by the end of 1971.

Singapore had been building its defence forces since 1965. However, Britain's accelerated plans for withdrawal made it necessary for the republic to draw up an entirely new plan. A large and rapid increase in its defence expenditure became necessary to build up the capabilities of the army, the navy and the air force to provide credible security. The expansion of the defence forces between 1968 and 1971 would be a costly undertaking. The annual cost in cash terms would reach about 10 per cent of Singapore's existing gross national product, or more than S$300 million a year. A series of taxes was proposed in 1968 to meet the greater cost of defence. Four were entirely new taxes, while three involved increases or changes in existing rates of taxes.