Two changes on the goods and services tax (GST) front were announced yesterday in what were highly anticipated moves.
Consumers are set to pay a higher GST of 9 per cent some time between 2021 and 2025, up from the current 7 per cent.
This comes as the Government's spending on healthcare, infrastructure and security has gone up and is expected to grow further, Finance Minister Heng Swee Keat said.
A new GST will also be pegged to imported e-commerce services in 2020 to ensure Singapore's tax system "remains fair and resilient in a digital economy", said Mr Heng.
The GST is a broad-based consumption tax levied on nearly all goods and services in Singapore. The last time it was raised was over a decade ago in 2007, when it went up from 5 per cent to 7 per cent.
Singapore's consumption tax is one of the world's lowest today.
The exact timing of the GST hike will depend on the state of the Singapore economy, how much expenditures grow and how buoyant existing taxes are, Mr Heng said.
"But I expect that we will need to do so earlier rather than later in the period."
AT A GLANCE
• GST will be raised from 7 per cent to 9 per cent some time between 2021 and 2025. Details of an offset package to support lower-income and middle-income households will be given later.
• Tobacco products will be taxed an extra 10 per cent.
• From today, buyers of homes priced at more than $1 million will have to pay higher stamp duties. A rate of 4 per cent will be charged on the price or value of the home in excess of $1 million, up from the previous rate of 3 per cent.
• Heavy emitters of greenhouse gases will begin paying a tax of $5 per tonne of greenhouse gas emissions in 2020. This carbon tax will be reviewed by 2023 and is set to increase to between $10 and $15 per tonne by 2030.
• From Jan 1, 2020, consumers will start paying GST when buying online services from overseas. These include music and video streaming, apps, online subscriptions and services like marketing and accounting.
He said the GST is necessary because "even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap".
The 2 percentage point increase will give the Government revenue of nearly 0.7 per cent of Singapore's annual gross domestic product.
The Government will continue to absorb GST on publicly subsidised education and healthcare. It will also top up the GST Voucher Fund by $2 billion this year to enhance the GST Voucher Scheme and provide more help for lower-income households and seniors.
An offset package will also be rolled out for a period to help people adjust to the GST hike, with lower-and middle-income households set to receive more support.
The GST works hand in hand with the GST Voucher Scheme, which helps lower-income households offset some of their GST expenses.
Meanwhile, a new GST on imported services will apply to overseas suppliers without an establishment here.
It will cover digital business-to-business (B2B) services such as marketing, accounting, IT and management services, as well as business-to-consumer (B2C) services such as video and music streaming, apps, listing fees on electronic marketplaces, software and online subscription fees.
E-commerce for goods less than $400 will not be affected, for now.
The Ministry of Finance (MOF) said B2B imported services will be taxed via a reverse charge mechanism, while B2C imported services will be taxed through an overseas vendor registration model.
The MOF and Inland Revenue Authority of Singapore will continue to consult the industry on the design of the GST implementation on imported services.
As for imports of low-value goods or goods worth less than $400, the Government is looking at the possible measures to take, Mr Heng said.
Ernst & Young Solutions partner and indirect tax leader Yeo Kai Eng believes the new GST rules on imported services are unlikely to have a major impact on end-consumers here. "Many e-commerce services firms have set up a presence in Singapore, which means they are probably carrying out local transactions subject to GST. But consumers holding overseas accounts for such services may get caught by the new rules," he noted.
In-house lawyer Ong Yee Yen, 33, who subscribes to streaming services Netflix and Spotify, is more worried about a possible tax for e-commerce goods.
"My total spending on digital services is small, so I'd imagine that the GST, if any, won't be a big amount. My concern is if there is GST on e-commerce goods and online shopping. That would have more impact. I hardly shop at brick-and-mortar stores any more."