facebookGST Singapore Hike Postponed to 7% - 8% In 2023 & 8% - 9% In 2024: Budget 2022 Singapore

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GST Singapore increase 2023

GST Singapore Hike Postponed to 7% - 8% In 2023 & 8% - 9% In 2024: Budget 2022 Singapore

profileJustin Oh

The GST hike from 7% to 9% has been at the back of our minds ever since it was announced back in 2018.

But fret not, the impending hike has been delayed till 2023 and will be increased progressively in two phases.

The first increase will take place from 1 Jan 2023, with GST going up from 7% to 8%.

Whereas the second increase will take place from 1 Jan 2024, with GST going up from 8% to 9%.

Source: Giphy

Here is all you need to know!


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 of between S$700 to S$1,600 over five years to help cushion the impact of the GST increase.

Jump to:


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 were two GST hikes: from 3% to 5% over 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.


How Does Singapore’s GST Stack Up Against the Rest of the World?

CountriesStandard rate
OECD average19%
China16%
Asia average11%
Malaysia10%
Australia10%
Japan8%
Singapore7%
(increasing to 9%)
Thailand7%

Source: KPMG 

Despite the impending increase from 7% to 9%, Singapore’s GST would still be one of the lowest in Asia, and the world.

For context, the 2021 global average was approximately 19%, with Asia’s average at around 11%.


So… Why the Need for a GST Rate Increase?

To date, 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.


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 enhanced the existing S$6.6 Billion Assurance Package for GST.

All eligible adult Singaporeans will be given S$700 to S$1,600 payouts in Cash, Medisave top-ups, and U-Save rebates in order to buffer the impact of the GST hike.

Source: MOF
Source: MOF

Additionally, there will be an additional $400 worth of CDC vouchers and $450 MediSave top-up over the next few years for the children and seniors.

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”.


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.

Source: Giphy

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.

Aside from GST, we have to deal with inflation too

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 make matters worse as it will also increase inflation directly.

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.


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.


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 about the many arguments surrounding taxes in Singapore here:

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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About Justin Oh
Your average Zillennial who is obsessed with anime, games, movies and of course, personal finance. Join me as I break down personal finance into easily digestible and fun bits!
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