If the Goods and Services Tax (GST) is raised, the increase should be phased in gradually to lessen the impact on households, two professional services firms said.
In separate reports outlining their recommendations for Budget 2018, Deloitte and EY both said any GST hike should be staggered.
Deloitte also suggested that basic necessities be exempt from GST.
Economists and tax specialists have been speculating about the format and timing of a potential tax increase, ever since Prime Minister Lee Hsien Loong said recently that Singapore will be raising its taxes as government spending grows.
The GST has emerged as one of the most likely candidates for an increase, especially since Singapore's rates are relatively low compared with its regional peers'.
If the GST is hiked by two percentage points, the increase should be done one percentage point at a time, said Deloitte's report, adding: "This would hopefully lessen the financial impact on the lower-income group in Singapore."
EY GST services partner Chew Boon Choo also called for a staggered hike but acknowledged that this approach could raise compliance costs for businesses.
In addition, Deloitte said the Government could consider exempting some basic necessities from GST.
These include children's clothing, basic foodstuffs such as rice and vegetables, and certain prescription medicines for the elderly.
"This, together with the usual GST vouchers, would help to ease the financial impact on the lower-income group,'' the report noted.
As an alternative to increasing GST, Deloitte said, the Government could consider reducing the GST registration threshold for companies.
"It is noted that many countries in Asia-Pacific have a low GST registration threshold so that most businesses are registered for and account for GST on their local sales," it said. Singapore's threshold is the highest in the world, said Deloitte.
Even if the threshold were reduced to $500,000 from the current $1 million, the threshold would still be comparatively high and would still exclude many small and medium-sized enterprises (SMEs), which make up a considerable number of active businesses in Singapore, it said.
EY said GST can also help level the playing field for local and overseas businesses. Its indirect tax services leader Yeo Kai Eng suggested having a GST registration regime for overseas vendors supplying digital services to consumers here.
He added that this proposal, already being studied by the Government, can curb tax leakages brought forth by the digital economy and provide one more source of revenue to support Singapore's spending on the economy, infrastructure and social services.
Deloitte's recommendations also include suggestions for making Singapore's tax system simpler and more friendly for SMEs, which tend to face disproportionately higher tax compliance costs compared with larger firms.
Ideas include using technology to automate the tax compliance process for SMEs, given that much of the information needed would already have been filed with the Accounting and Corporate Regulatory Authority as part of a company's financial statements.
EY also noted that the evolving global tax regime is set to fundamentally change the foreign direct investment landscape in the coming years.
These shifts include implementing base erosion and profit shifting (BEPS) action plans in various jurisdictions as well as tax reform in the United States. BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
