What you need to know about the Singapore GST hike
The GST hike has been held off last year due to the pandemic. Here's what you need to know about the latest hike.
In 2018, it was announced that the Singapore GST would be raised from 7% to 9% between 2021 to 2025. The increase was not pushed through last year due to the Covid-19 pandemic. But now that the Singapore economy is “emerging from the pandemic”, the buzz around the GST hike has been revisited.
In his New Year message, Prime Minister Lee Hsien Loong said that the Government will start working again on the hike.
GST is a broad-based tax that is paid on goods or services consumed domestically, and includes imports. It is known as value-added tax, or VAT in other countries.
GST was first introduced in 1994 at 3% which was a decision made by the Singapore government to boost Singapore’s competitiveness on an international scale. The revenue collected from GST allows Singapore to keep income and property tax rates low.
GST is a multi-stage tax collected at each stage of the production and distribution chain. There are two types which are: (1) Output GST, a GST-registered business charges on its local supplies of goods and services and is collected by businesses on behalf of the Government. (2) Input GST is a GST-registered business pays on its purchases of goods and services for business purposes. To determine the net GST payable by or refundable to the business, input tax paid is deducted from the output tax collected in a given period. (https://www.straitstimes.com/singapore/what-you-need-to-know-about-the-impending-gst-hike)
Singapore's Current GST Rate: 7%
Singapore's current GST rate is at 7%, which is known to be among the lowest in Asia. The global VAT average in 2021 was 19%, and 12% in Asia. Singapore is still currently below the Asian average.
Some sale/lease are GST exempt. For example, sale and lease of residential properties, financial services, import and local supply of investment precious metals, and supply of digital payment tokens are exempt. For lower-income households, the Government has fully absorbed GST on publicly subsidised education and healthcare.
Why increase now?
The first time the GST rate was raised was in 2003-2004, from 3% to 5%. The later it was raised to 7% in 2007.
According to the Singapore Government, a hike is acceptable in the midst of economic growth and consumer spending. They said that the economy is already recovering with GDP expected to grow, which justifies the hike.
The hike is important so Singapore can boost its tax revenue to fund social and healthcare spending. Given its ageing population, this is essential. Also, public spending has grown significantly since 2007. According to Straits Times, "Government healthcare expenditure grew from around $2.2 billion to $11.3 billion. Having run up cumulative budget deficits of more than $75 billion over the past two years and drawn down reserves to the tune of $53.7 billion, there is also some urgency to rebuild public finances. The Government has to meet the constitutional requirement to balance the budget by 2025."
While the GST hike over 2003 and 2004 was done in a staggered manner, it was said to have been an inconvenience to GST-registered businesses, which have to adjust their enterprise resource planning systems and displayed prices. So for this round, the hike will be at one go
Thus, some analysts expect the GST to be raised by two percentage points at one go.
Exceptions and Support
Singapore has a broad-based GST system with no reduced rates on essential goods, thus allowing tax to be administered simply without segregating which ones are essential. No exceptions are made for any sector, including F&B, tourism and entertainment.
The good thing is there's a $6 billion Assurance Package, which means that all adult Singaporeans will get cash payouts of between $700 and $1,600 over five years to offset at least five years of additional GST expenses for most households, and 10 years' worth for those living in one- to three-room Housing Board flats.
The GST Voucher scheme, which has three components, which are cash, MediSave top-ups and U-Save rebates, and all will be enhanced when the GST rate is increased.
The Government also rolled out offset packages such as cash payouts, utilities, conservancy and rental rebates, and other subsidies.
The Budget 2002 GST offset package was $3.6 billion in Economic Restructuring Shares for eligible Singapore citizens aged above 21. Shares worth between $600 and $1,400 were disbursed over three years. While the Budget 2007 GST offset package comprised cash payouts called GST credits, a senior citizens' bonus over four years, and top-ups to the Public Transport Fund for lower-income households, among other kinds of help.
To understand more about this hike, take a look at this video from Gov.sg: