Delayed GST hike a relief for businesses, with many already facing higher costs

SINGAPORE - The delay of the goods and services (GST) tax hike to next year has given businesses here some breathing space as many are currently grappling with rising costs, business associations said.

The GST will go up from 7 per cent to 9 per cent in two stages, one percentage point each time on Jan 1, 2023, and Jan 1, 2024.

"Generally, the SMEs were very relieved that the increase would not be this year because it gives us some time to deal with the current cost increases. It would have been an additional burden, an additional worry, and it would be frustrating for businesses," said Mr Ang Yuit, vice-president of the Association of Small and Medium Enterprises.

Consumers may choose to moderate their spending when prices of goods and services increase due to the tax hike, he said. This would further impact bottom lines of businesses already pressured by rising costs in manpower, logistics and electricity.

Businesses are also already struggling to maintain current prices of goods or services.

Labour prices are inching upwards because of a shortage in manpower and lower productivity, as have shipping costs due to port congestion, while some businesses here have also been hit with steep electricity price hikes.

Although Mr Ang said he expects these cost pressures to abate by the second half of this year, the current Russian and Ukraine conflict adds another element of uncertainty, especially in terms of electricity prices.

It was also comforting that the GST increase would start together with the GST implementation on imported low-value goods - items valued at $400 or less - that kicks in on Jan 1 next year, he said.

Had the GST hike kicked in earlier, local businesses would be disadvantaged as their goods would be even more expensive.

A spokesman for the Restaurant Association of Singapore said that while the staggered implementation of the GST increase will offer affected businesses some runway, it is inevitable that prices will still increase.

"Beyond pressures of GST increases leading to price increases for customers, the acute cost pressures from manpower, rentals, food supplies and energy have also been increasing.

"All these increases will have to be passed on and likely translate to significant increases for consumers in the near future," the spokesman said, adding that revenues for the sector have already fallen by about 25 per cent compared with before the pandemic because of safe management measures and border restrictions.

Singapore Retailers Association executive director Rose Tong said the cost of raw materials has been rising. These take up about 40 per cent to 70 per cent of a retailer's total cost.

She said the association expects consumers will bring forward big-ticket purchases such as furniture before the GST hike kicks in.

"We are confident that retailers will seize all available opportunities to creatively capture sales during these 10 months prior to the implementation of the GST increase," Ms Tong added.

Singapore Business Federation chief executive Lam Yi Young said the association expects consumers to moderate their spending in the short term, especially on big-ticket items and discretionary spending once the hike kicks in.

"Some of the things that businesses can do to ameliorate the effect include absorbing part of the GST increase in the short term, timing and spacing out their price increases over this year and the next, and offering promotions and special packages to attract customers."