In case you missed it, GST in Singapore will increase to 9% on 1 Jan 2024!
Why gahmen always give chicken wing but take back whole chicken?
If such thoughts cross your mind, here’s what you need to know about GST in Singapore and how it will affect you!
TL;DR: How Will the GST Hike Affect Singaporeans?
With GST being raised from 7% to 9% before 2025, most Singaporeans will feel the pressure to spend less on “good-to-haves” such as food deliveries, dining out and shopping.
Based on YouGov surveys conducted on spending habits, delivery riders and businesses will bear the initial brunt of the GST increase as demand for services drops.
Lower- and middle-income households will receive payouts as part of the GST voucher scheme and Assurance Package over five years to help cushion the impact of the GST increase.
Jump to:
- What Is GST and Why Does Singapore Need It?
- Is Singapore’s GST High?
- Why Is There a Need For a GST Increase And Is It The Right Time?
- How Will The GST Hike Affect Me?
- What Can I Do When GST Increases?
What Is GST and Why Does Singapore Need It?
According to the Inland Revenue Authority of Singapore (IRAS):
Goods and Services Tax or GST is a broad-based consumption tax levied on the import of goods, as well as nearly all supplies of goods and services in Singapore.
In other words, GST is money collected by the Singapore Government from the consumption of almost all goods and services within Singapore.
GST was first introduced in 1994 at a rate of 3%.
Since then, there have been two GST hikes: from 3% to 5% in 2003 and 2004 and 5% to 7% in 2007.
You might ask, why does our Government need to implement GST in the first place?
The answer is a simple one: to bolster our competitive advantage as a nation by moving away from direct taxes.
Having GST allows us to keep our individual income tax, corporate income tax and property tax rates low.
Moreover, GST alone accounts for over one-fifth (21%) of our Government’s revenue over the past five years, giving us more to spend on important sectors such as healthcare.
Is Singapore’s GST High?
| Countries | Standard rate |
|---|---|
| OECD average | 19.2% |
| China | 6% to 13% depending on the types of goods and services |
| Malaysia | 10% |
| Australia | 10% |
| Japan | 10% |
| Singapore | 9% (from 2024) |
| Thailand | 7% |
Source: PWC
Despite the increase from 7% to 9%, Singapore’s GST would still be one of the lowest in Asia, and the world.
For context, the 2022 global average was approximately 19.2%.
So… Why the Need for a GST Rate Increase?
Until 2022, GST has remained unchanged for more than 14 years.
However, due to rising public expenditures on healthcare, infrastructure, security and other social sectors, Singapore has been running at a deficit for five (financial) years.
Source: tradingeconomics.com
During financial year (FY) 2020-2021, Singapore faced the largest budget deficit of 13.9% ever, due to the COVID-19 pandemic.
Thus, the pressure for our nation to recuperate from its losses (more than $75 billion over the past two years) by generating revenue is increasing as the years go by.
Is It Really the Right Time to Increase Singapore’s GST Rate to 9%?
There are many factors to consider when answering such a big question.
According to Mr Heng Swee Keat, our previous finance minister, the Government “will not be able to put off the increase for too long” and that the move should be made “sooner rather than later, subject to the economic outlook”.
So, what is the current economic outlook for Singapore?
A quick indicator for our economy is the Gross Domestic Product (GDP). In 2021, our GDP grew by 7.6%. But that comes after a huge shrink of 5.8% in 2020 due to the pandemic.
Although things are seemingly recovering based on GDP, this indicator is not without its flaws. It does not take into consideration the wealth disparity in Singapore.
Thankfully, Singapore’s Gini coefficient has been on a downwards trend, which means income inequality in Singapore is becoming less of a problem.
Be that as it may, we have to consider rising costs, aka inflation, which has been driving prices what seems like everything up and disproportionately affecting lower-income households.
Petrol prices have gone up, along with ERP charges, electricity prices, public transport prices… the list goes on.
Although the Government has been very generous with payouts, it is becoming increasingly harder for lower-income groups to cope.
Furthermore, increasing Singapore’s GST during heightened inflationary periods could worsen matters as it will also directly increase inflation.
As an added punch to the gut, the Assurance Package for GST does not take into account the size of households. This means that GST rebates will be distributed unevenly; a household with two working adults and no children will receive the same amount as two working adults with three more mouths to feed (assuming these households live in one to three-bedroom HDB flats).
This is a huge dilemma for our nation and there is never a good time to increase GST.
That said, after careful consideration from our Government, the GST increase will begin on 1 Jan 2023 as announced in Budget 2022.
The GST increase will be done in two stages: the first increase will take place on 1 Jan 2023, from 7% to 8%, and the second increase on 1 Jan 2024 from 8% to 9%.
This will give us time to adjust and adapt to the GST hike.
How Will It Affect Singaporeans?
Short-term
Needless to say, an increase in GST will pressure us to reduce our spending.
According to a survey by YouGov, nearly half of Singaporeans (48.3%) will reduce spending should GST increase and almost half said that they would spend less on dining and takeaway purchases (50.1%), clothing and apparel stores (48.7%) and food delivery (48.3%).
As such, food delivery riders and businesses will bear the initial brunt of the GST hike.
Long-term
Over the longer term, the GST increase will affect lower- and middle-income households the most, coupled with rising costs due to inflation.
The Government has taken the effect of the GST hike into consideration and has been providing financial support via GST vouchers and Assurance Package Payouts.
According to our Government, the Assurance Package will “effectively delay the effect of the GST rate increase by at least five years” for the majority of Singaporean households and “offset about ten years’ worth of additional GST expenses incurred”.
What Can We Do When GST Increases?
As consumers, apart from reducing our spending where possible, there really isn’t much else we can do except to re-evaluate our budgets and start investing to beat rising costs.
Some Singaporeans have gone to the extent of purchasing big-ticket items just before the GST increase in 2023. They spent over $9,000 and effectively saved $90, which isn’t really a lot, to be honest. Plus, they were taking a huge risk as they have yet to have their new house completed.
While you can do that to save a little bit, make sure that you have such purchases planned out as you do not want to have to pay extra for storage if you aren’t going to use these items right away!
Afterthoughts
Increasing GST is never an easy decision and even more so during these unpredictable times. Some of you may have questions such as:
- With the rich buying up Good Class Bungalows (GCB) these days, why not tax the rich by removing the GCB exemption?
- Why not increase GST but only for luxury goods?
- Why every year give chicken wing but take back whole chicken?
While we won’t be covering these concerns in this article, you can read up on the many arguments surrounding taxes in Singapore here:
- Commentary: Why different GST rates for luxury and essential goods don’t make much difference for Singapore
- Raising GST: the case for sooner than later
Looking forward beyond 2025, we will have to consider how else to keep up with public expenditure without putting too much pressure on the less fortunate among us. One thing is for sure though, we will have to look out for one another amid rising costs of living.
You may contribute your thoughts about the GST hike on Seedly’s community page.
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