Singapore government is likely to raise Goods and Services Tax (GST) from 7 per cent to 9 per cent in the 2018 budget, predicted DBS in a research report. Moreover, the projected hike is likely to be staggered over the next two years.
Irvin Seah, a DBS senior economist, while authoring the report, said, “Of the three key major tax options, the Goods and Services Tax (GST) is most likely to be raised in Budget 2018. Rising the GST rate is perhaps the most direct and effective tool in terms of raising tax revenue. .. We reckon GST rate will be raised by 2 per cent points.”
The report, titled 'DBS Focus Singapore: Biting the GST bullet' estimated that a one-percentage-point increase in GST would bring in an additional SGD1.6billion to SGD1.8billion in tax revenue for the government — equivalent to 0.4 per cent of Singapore’s nominal gross domestic product.
“The projected rise in the GST would come amid a challenging fiscal position for Singapore, which had registered three consecutive years of deficit in the primary balance,” the report said.
Singapore’s fiscal policy will also become more challenging as the population continues to age, resulting in faster increase in social expenditure than in previous years. In addition, there is a need to invest in infrastructure and human capital to boost Singapore’s economic competitiveness.
Singapore first implemented a GST of 3 per cent in 1994. It was increased to 4 per cent in 2003, and to 5 per cent in 2004. The rate went up to the current 7 per cent in 2007. Each time, the hike was accompanied by an offset package to cushion the impact on households.
Talking about the offset package to overcome impact on people, the DBS report said, “Along with the GST hike, an offset package will likely be introduced to cushion the impact on consumers, particularly on lower-income households. A GST offset package of at least SGD4b could be announced, which will more than cover the projected amount of tax revenue that could be derived from the 2 per cent tax hike.”
Members of the Singapore government have pointed out about increasing the taxes at various forums including Prime Minister Lee Hsien Loong. Speaking at the People’s Action Party
convention on November 19, PM Lee reiterated that it is a matter of when and not if taxes will be raised adding that the Government will explain to Singaporeans what the money is needed for and show how it will benefit the young and old.
Even Indranee Rajah, Senior Minister of State (Finance) of Singapore, has pointed out towards hike in tax. She told a Singapore-based newspaper that the government has not decided on the date of the impending tax hike adding that the government will take into account factors such as setting aside enough time for people to absorb the news, and ensuring the needy “have enough buffer” against the impact.