Experts expect GST hike within a few years

Shoppers in Orchard Road at the junction near Takashimaya. PHOTO: ST FILE

Economists and tax experts expect the goods and services tax (GST) to go up within the next few years, with an announcement expected as soon as Budget 2018.

Their predictions follow comments by Prime Minister Lee Hsien Loong, who told the People's Action Party (PAP) convention on Sunday that Singapore will be raising its taxes as government spending grows.

Besides a GST hike, the Government could be exploring alternative avenues for raising revenue, including taxes on e-commerce spending, experts say.

Finance Minister Heng Swee Keat had hinted at upcoming tax hikes in his Budget speech in February, saying Singapore's expenditure needs are expected to rise rapidly in the years to come, particularly in healthcare and infrastructure.

The Government's expenditure already far outstrips revenue - it expects a primary deficit of $5.62 billion for financial year 2017.

Experts say higher tax revenues are unlikely to come from raising corporate tax rates, given the need for Singapore's economy to stay competitive. Broad-based hikes in personal income tax rates are also unlikely, because the Government plans to keep taxes progressive.

This makes GST the top candidate for a tax increase.

CIMB Private Bank economist Song Seng Wun said: "The straightforward one is the GST, which has not been touched in a decade.

"At the moment, there is no pressing need to raise it. But it has been more than a decade, and 7 per cent is very low relative to the global average," he said.

Mr Loh Eng Kiat, a tax partner at accountancy and business advisory firm Baker Tilly, said: "Globally, there is an increasing shift from direct taxes to indirect taxes as governments relook the composition of their tax base and the efficiencies of the relevant taxes.

"In line with these underlying trends, I expect it is more likely for Singapore to raise the GST rate rather than to raise the tax rate for corporates."

Mr Chia Seng Chye, tax services partner at Ernst & Young Solutions, said the increase is likely to come "fairly soon, within the next one to two years".

"Our GST rates are considered low relative to some other countries in the region. The average is about 10 per cent.

"Whether it is an immediate step-up or a phased increase remains to be seen," he said.

The GST was implemented at a single rate of 3 per cent on April 1, 1994. It was raised to 4 per cent in 2003, and to 5 per cent the following year. The last hike to 7 per cent came in 2007.

Each increase was accompanied by an offset package to help households cope with the higher costs of living.

As for taxing the growing digital economy, Associate Professor Simon Poh of the Department of Accounting at the National University of Singapore's Business School said imposing GST on e-commerce transactions could come next year.

"This would level the playing field in retail for online and bricks-and-mortar sellers," he said.

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A version of this article appeared in the print edition of The Straits Times on November 21, 2017, with the headline Experts expect GST hike within a few years. Subscribe