Singapore to raise goods and services tax in January

Singapore will increase its Goods and Services Tax, also known as GST, from 7% to 8% on January 1st. This is his first of two planned GST increases, with his second due in January 2024, which will raise GST from 8% to 9%. .

of GSTMore It is a consumption tax levied on almost all goods and services in Singapore. From 1 January 2023, GST is charged on low value imported goods up to S$400.Currently, only imported goods valued at S$400 or more are subject to GST. This change will make all goods and services imported into Singapore subject to tax, including imported goods purchased online.

Businesses based in Singapore with an annual turnover of more than S$1 million (US$742,000) must register for GST and charge GST at the prevailing rate on all taxable goods.

Singapore’s parliament passed a bill to amend the GST in November, but Singapore’s opposition parliamentarians opposed the hike, saying it was ill-timed amid inflationary pressures.

Inflation in Singapore hit a 14-year high of 7.5% in August. Inflation eased slightly in recent months, with annual inflation in November he stood at 6.7%, well above the 2% recommended by the country’s central bank. overall price stability.

The economist who listened CNBC Opinions are divided as to whether tax increases will hit the country’s lowest-income earners harder than others.

lowest income earners in singapore, Who has the least wage increases among all income groups?Household spending will also experience the biggest surge as inflation rises, according to the report. DBS.

Low-income people tend to save less and spend more, says Antonio Fatas, an economics professor at INSEAD. “Given that this is a sales tax, they may feel the direct impact more strongly,” he said.

Singapore recently S$1.4 billion was added to a $6.6 billion fund designed to mitigate the impact of the GST hike. Payments from the current S$8 billion guarantee package will be spread over five years from December 2022. Up to 2.9 million adult Singaporeans will receive different cash payments depending on their income and property holding status.

The guarantee package is designed to cover additional GST costs for at least five years for most Singaporean households and around 10 years for low-income households, according to Singapore’s Deputy Prime Minister and Finance Minister Lawrence Wong. .

Euston Quah, director of economics at Nanyang Technological University, said these offsets would shield low-income households from the impact of the tax hike.

“There are offsets, rebates, and ample transfers, so low-income people won’t be affected,” Quah said.

High-income earners will have the means to maintain their own lifestyles, so Kua said.

Middle-income Singaporeans are most likely to be affected by the GST hike. They don’t qualify for financial aid or kickbacks, and they can’t necessarily afford to pay a higher price.

Some business units may be affected more than others, depending on the “demand elasticity” of the goods and services they offer, Kua said. Elasticity measures how sensitive demand for a product is to changes in price.

Companies that sell products whose demand is highly price-sensitive, such as luxury brands and fine restaurants, will be hit harder by price increases than companies that sell basic necessities, such as supermarkets, Kuar said. said.

Ride-hailing services in Singapore are divided in their response to the GST increase.seize the will Passing on increased GST tax to independent driversAccording to The Straits Times, they were forced to incur additional costs. Other ride-hailing services, including Ryde, told The Straits Times that their fees remain unchanged.

Grab and Ryde did not immediately respond to CNBC’s request for comment.

Ride-hailing company ComfortDelGro told CNBC that it will extend the 15% daily rental waiver until March 31, 2023 to help drivers cope with rising costs of living. Fees will not change.

Most businesses will not be significantly affected by the increase, Charities and non-profit organizations Ajay Kumar Sanganeria, a partner at accounting firm KPMG, said it could be because the GST incurred for free non-business activities such as free medical services cannot be claimed.

He added that a surge in big-ticket purchases is expected before each GST increase takes effect. purchases will be made before the new tax.

Sanganeria said there was “never a better time” to raise the GST rate.

“Even before the pandemic, given Singapore’s aging population and rising costs of health care and infrastructure, it was appropriate for Singapore to increase tax revenues to fund social spending,” he said. rice field. The pandemic has increased its medical costs.

Singapore in total S$72.8 billion in Covid-19 aid and recovery measures over the past two yearswhich accounts for more than S$13 billion in public health spending.

“It is not hard to see that Singapore needs to find more financially sustainable ways to fund its social, environmental and medical needs.”

According to this year’s statistics, the number of citizens over the age of 80 has increased by more than 70% since 2012. population reportBy 2030, about one in four Singaporeans will be over the age of 65, the report says.

According to Singapore Ministry of Finance Healthcare spending is expected to grow 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 its low birth rate and long life expectancy.

Singapore’s GST rate, which will be raised in two stages to 9% from 1 January 2024, will remain the lowest in the Asia-Pacific region, said Chew Boon Choo, Indirect Tax partner at consulting firm Ernst & Young Solutions. said.

As of January of this year, most Asia-Pacific countries’ Goods and Services Tax is over 7%.

The Goods and Services Tax in China is 13%. The Goods and Services Tax rates of the Philippines and Vietnam are 12% and 10% respectively.

According to EY, Taiwan’s goods and services tax is the lowest in the region at 5%.

Other countries in the region have recently increased their goods and services taxes. Indonesia, which raised the tax rate from 10% to 11% in April this year, plans to raise it to 12% by January 1, 2025. Japan’s consumption tax rate has been raised from 8% before October 2019 to 10% today.

In August 2021, Thai Cabinet Approves Extension In view of the economic pressures caused by the Covid-19 pandemic, the reduced value added tax (VAT) rate of 7% for an additional two years. Without further extensions, the VAT rate will return to 10% in the second half of next year.