Singapore will raise the Goods and Services Tax in January
Singapore’s GST will rise to 8% in January 2023.
Ore Huiying | Bloomberg | Getty Images
On January 1, Singapore will raise its Goods and Services Tax, also known as GST, from 7% to 8%. It is the first of two planned increases in GST, with the second scheduled to take place in January 2024, when GST will be raised from 8% to 9%.
That VAT is a consumption tax levied on almost all goods and services in Singapore. From 1 January 2023, GST will be levied on low-value imported goods worth up to S$400. Currently, only imported goods valued above S$400 are subject to GST. With the change, all goods and services imported into Singapore, including imported goods purchased online, will be subject to the tax.
Companies based in Singapore with an annual turnover of more than S$1 million (US$742,000) are required to register for GST and collect GST on all taxable goods at the applicable rate.
Singapore’s parliament passed the GST amendment bill in November, despite members of parliament from Singapore’s opposition parties opposing the increase, citing poor timing amid inflationary pressures.
The inflation rate in Singapore hit a 14-year high of 7.5% in August. Inflation has moderated slightly in recent months, with November’s annual rate of inflation at 6.7%, but that is significantly higher than the 2% inflation recommended by the country’s central bank overall price stability.
Who will be most affected?
Economists who spoke with CNBC had conflicting views on whether the tax increase will hit the country’s lowest earners harder than others.
Singapore’s lowest incomes, whose wages rise the least among all income groupswill also experience the biggest jump in household spending as inflation rises, according to DBS.
Low-income people tend to save less and consume more, said Antonio Fatas, professor of economics at INSEAD. “Given that this is a tax on consumption, the immediate impact may be felt more by them,” he said.
Singapore recently made one S$1.4 billion increase to a $6.6 billion fund designed to cushion the impact of the GST increases. Payments from the Assurance Package, now at S$8 billion, will be spread over five years from December 2022. Up to 2.9 million adult Singaporeans are expected to receive cash payments that vary according to their income and property status.
The assurance package is designed to cover at least five years of additional GST expenses for most Singaporean households and about 10 years for lower-income households, according to Singapore’s Deputy Prime Minister and Finance Minister Lawrence Wong.
Euston Quah, head of economics at Nanyang Technological University, said these offsets will spare low-income households from the effects of the tax hike.
“The lower income group will not be affected as there are offsets, rebates and adequate transfers for them,” Quah said.
High-income people won’t be affected much, Quah said, since they have the means to continue with their lifestyles.
Middle-income Singaporeans may be most affected by GST increases, as they neither qualify for financial assistance and rebates, nor can they necessarily afford higher prices, he said.
Business sectors and price sensitivity
Some business sectors may be more affected than others, depending on the “elasticity of demand” of the goods and services they provide, Quah said. Elasticity measures how sensitive demand for a product is to changes in price.
Businesses that sell products whose demand is highly sensitive to changes in price, such as luxury brands and fine-dining restaurants, will be more affected by the hike than businesses such as supermarkets that sell basic necessities, Quah said.
Ride-hailing services in Singapore are divided in their response to the GST hike. Take will pass on the increased GST charge to its private hire drivers, forcing them to absorb the extra costs, according to The Straits Times. Other ride-hailing services, including Ryde, told The Straits Times that commission fees will remain the same.
Grab and Ryde did not immediately respond to CNBC requests for comment.
Ride-hailing company ComfortDelGro told CNBC that the company will extend its 15% daily rental exemption until March 31, 2023 to help drivers cope with the rising cost of living. Its commission fees remain unchanged.
Most companies should not be significantly affected by the migration, but charities and non-profit organisations may be because they cannot claim the VAT accrued for free non-business activities, such as free medical services, said Ajay Kumar Sanganeria, partner at accounting firm KPMG.
A surge in purchases of big-ticket items is expected ahead of the implementation of each GST hike, he added. Customers are making purchases like furniture and cars ahead of new taxes to avoid paying the extra cost, Sanganeria said.
There is “never a good time” for an increase in GST rates, Sanganeria said.
“Even before the pandemic, it was relevant for Singapore to increase its tax revenue to fund social spending given Singapore’s aging population and rising health and infrastructure costs,” he said. The pandemic has increased healthcare costs.
Singapore has spent in total S$72.8 billion on Covid-19 support and recovery measures over the past two financial yearswith public health expenditure accounting for more than S$13bn.
“It is not hard to see that Singapore needs to find more fiscally sustainable ways to fund its social, environmental and health needs.”
The number of citizens aged 80 and over has increased by over 70% since 2012, according to this year’s population report. By 2030, about one in four Singaporeans will be 65 or older, the report says.
According to Singapore’s Ministry of Finance, healthcare spending is expected to rise from S$11.3 billion today to S$27 billion by 2030.
Singapore is one of the fastest aging countries in the world due to low fertility rates and longer life expectancy.
How Singapore compares with other countries
Following the two-step rate hike to 9% from Jan 1, 2024, Singapore’s GST rate will remain one of the lowest in the Asia-Pacific region, said Chew Boon Choo, partner for Indirect Tax at consultancy Ernst & Young Solutions.
As of January this year, most Asia-Pacific countries had a GST of more than 7%.
China’s goods and services tax is 13%. The Philippines and Vietnam have a GST rate of 12% and 10% respectively.
Taiwan has the region’s lowest GST at 5%, according to EY.
Other countries in the region have recently raised their taxes on goods and services. Indonesia, which raised its rate from 10% to 11% from April this year, plans to go to 12% by January 1, 2025. Japan’s consumption tax rate is now 10%, up from 8% before October 2019.
In August 2021, The Thai Cabinet approved the extension of the reduced value added tax (VAT) rate of 7% for a further two years in light of economic pressure caused by the Covid-19 pandemic. The VAT rate will return to 10% at the end of next year, if not extended further.