Singapore plans to hike GST to 9%

Singapore said yesterday that the goods and services tax would rise to 9% from 7% , but the change would only come “sometime” between 2021 and 2025, making it likely that the increase would kick in after the city-state’s next general election.

Instead of getting a GST hike soon, Singaporeans aged 21 and above will get a ‘’hong bao’’, or Lunar New Year red packet, as Finance Minister Heng Swee Keat announced a “oneoff” bonus in 2018 of up to S$300 (US$228.50), depending on their income.

The bonus comes after Singapore’s tradereliant economy grew 3.6% in 2017, its best pace in three years.

Global economic growth, plus comments by policymakers on the importance of raising revenue to meet future spending needs for Singapore’s ageing population, led many analysts to expect that the GST, kept at 7% since 2007, would increase as early as the coming fiscal year.

“The surprise for us was that the planned increase was for a much later period,” said Jeff Ng, chief economist Asia for Continuum Economics. “This eases the need for a future government or administration to announce the GST.”

Singapore’s next general election is due to be held by January 2021. In the last one in 2015, the ruling People’s Action Party won 70% of the vote, a strong improvement from the 60% garnered in 2011.

After announcing the planned GST hike, the finance minister said “the exact timing will depend on the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are. But I expect that we will need to do so earlier rather than later in the period.”

Singapore introduced a GST in 1994, with a 3% rate. This was raised to 4% in 2003 and 5% in 2004, then to 7% in 2007. The current rate is among the world’s lowest for a consumption tax.

Besides the plan for raising GST, Heng unveiled other tax measures.

These include increasing the top marginal buyer’s stamp duty on residential property worth more than S$1 million effective from today, raising the excise duty on tobacco products and introducing GST on imported services from 2020.

Coming in 2019 is a carbon tax, which will be S$5 per tonne of greenhouse gas emissions until 2023. The plan is to increase it to between S$10-S$15 per tonne by 2030.

Heng said spending needs would rise across various sectors in coming years, including in health care, infrastructure and security.

“The government expects average annual health-care spending to rise from 2.2% of GDP currently, to almost 3% of GDP over the next decade,’’ he added.