Singapore: Inflation pressures could delay GST hike to January 2023, economists say

The GST increase from 7 per cent to 9 per cent was first announced in 2018, and is meant to help Singapore deal with rising recurrent spending needs. - The Straits Times/ANN

SINGAPORE, Jan 16 (The Straits Times/ANN): The planned goods and services tax (GST) increase could kick in as soon as this July if the approach taken with the previous GST rate hike in 2007 is a guide.

The 2 percentage point increase from 7 per cent to 9 per cent was first announced in 2018, and is meant to help Singapore deal with rising recurrent spending needs on the likes of healthcare and social support.

However, given global inflation pressures and the uneven economic recovery despite the 7.2 per cent year-on-year growth last year, some observers suggest the rate hike could kick in only in January next year.

While the earliest possible date for the GST increase to take place could be July 1, having it take effect on Jan 1 next year would give businesses and consumers a little more time to make the necessary preparations, said Selena Ling, OCBC Bank's head of treasury research and strategy.

Both DBS Bank senior economist Irvin Seah and UOB economist Barnabas Gan noted that in 2007, when the GST rate was raised from 5 per cent to 7 per cent, the increase took effect in July, about five months after the announcement was made at that year's Budget in February.

"That is more or less the kind of time required to ensure that companies will be able to put in place the changes," said Seah.

DBS noted in a report last month that the Government could delay the rate hike to early next year if Singapore's growth outlook unexpectedly deteriorates sharply or if inflation "becomes a runaway train", but this would be too close to the presidential election due next year.

Several tax experts, however, expect the rate increase to kick in on Jan 1 next year, which would be in tandem with the extension of GST to low-value goods worth up to $400 as well as business-to-consumer imported non-digital services.

PwC Singapore GST leader Kor Bing Keong said that while the Government has stressed the need to raise the GST rate to finance higher recurrent spending, Singapore is going through a phase of higher-than-expected headline inflation.

"Our economy, though recovering, will continue to face headwinds. Businesses also need sufficient lead time to make changes to processes and systems to implement the GST rate hike," he added.

Maybank Securities Singapore analyst Chua Hak Bin also pointed to inflation risks and the uneven recovery in Singapore's economy as reasons for preferring the GST hike to be delayed until next year.

Lam Kok Shang, partner and head of indirect tax at KPMG in Singapore, said the additional time between the announcement and effective date of the GST hike would give consumers time to brace themselves for impact while the country enters more positive growth, where there should be more employment opportunities and higher salaries.

Deloitte Singapore indirect tax leader Richard Mackender said a GST rate increase could be inflationary, and could also impact consumer sentiment.

"Ideally the increase would happen in the upswing as consumer sentiment improves and the economy is buoyant. Delaying the increase to give the economy time to improve further would be a major consideration," he said.

Yeo Kai Eng, Asean indirect tax leader at EY, noted that for local businesses, the rate hike is likely less of a concern as most GST-registered businesses would be able to recover the GST incurred on their purchases.

"Non-GST registered businesses should evaluate if they are eligible for voluntarily GST registration to facilitate the recovery of the GST incurred," he said, adding that firms should also be mindful that a higher GST rate also means higher penalties for tax non-compliance as penalties are generally imposed on the value of the tax underpaid or overclaimed.

Experts acknowledged that the GST hike - regardless of timing - is inevitable, given Singapore's planned spending commitments for the likes of healthcare and the need for the tax base to be stable and sustainable.

Deputy Prime Minister Heng Swee Keat noted in previous Budget speeches that the 2 percentage point increase will give the Government additional revenue of almost 0.7 per cent of Singapore's gross domestic product a year.

In Budget 2020, a $6 billion package was set aside to help cushion the impact of the GST hike when it takes place. It will stave off the impact of the rise by five years for the majority of Singaporeans, and by 10 years for lower-income groups.

Maybank Securities Singapore analysts said the package could be raised to between $7 billion and $8 billion "to soothe the ground and cushion the impact".

OCBC's Ling said she is leaning towards a staggered GST hike, where there is a two-part 1 percentage point increase, as some laggard industries such as retail have not recovered to pre-Covid-19 levels.

"A 2 percentage point GST hike may be too much to bear at a time when other government support measures are also being withdrawn," she noted.

However, DBS' Seah cited how a 2 percentage point hike in 2007 was implemented amid an economic upcycle, compared with the phased approach in 2003 and 2004 during a downcycle, where the GST rate was increased from 3 per cent to 4 per cent in 2003, and to 5 per cent in 2004.

Given that Singapore is seeing an upcycle in its economic recovery, a one-time 2 percentage point hike is more likely, he added.

UOB's Gan said the GST hike announcement could drive some demand for retail sales, especially for consumers who want to take advantage of the current GST rate before the increase.

National University of Singapore's Associate Professor Simon Poh raised a similar point, noting that individuals could choose to bring forward planned big-ticket purchases.

"Some may even go the extra mile to buy only from non-GST registered businesses so that GST is totally avoided, but arguably this is likely to apply only to the cheaper goods and services," he added. - The Straits Times/ANN

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Singapore , Inflation , GST , Price Hike , Jan 2023


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