Assurance Package to help households offset GST hike to get $1.4b boost, will now total $8b

The GST will increase by one percentage point from 7 per cent to 8 per cent on Jan 1, 2023. ST PHOTO: KUA CHEE SIONG

SINGAPORE - There will be a $1.4 billion boost to the support package for households to offset the impact of the upcoming goods and services tax (GST) hike, given higher inflation, Deputy Prime Minister Lawrence Wong told Parliament on Monday.

This means that the Assurance Package will now be worth $8 billion, up from $6.6 billion before. The package was first announced in 2020, with a top-up of $640 million announced in Budget 2022.

More details on the enhancements to the package will be announced in Budget 2023, said Mr Wong.

Mr Wong, who is also Finance Minister, was speaking at the start of the debate on the GST (Amendment) Bill, which saw 15 MPs speak.

He said that with higher inflation, household expenditure and the additional GST expenses are expected to increase. The size of the support package would therefore need to be correspondingly increased to meet the Government’s committed level of offsets.

The GST will increase by one percentage point from 7 per cent to 8 per cent on Jan 1, 2023, and another percentage point to 9 per cent on Jan 1, 2024.

The Government had committed to ensuring that the package would offset the impact of the GST increase for the majority of Singaporean households for at least five years, and for lower-income households for about 10 years.

Mr Wong said: “The Government will help all Singaporeans adjust to the GST increase, especially the less well-off.”

He also reiterated the reasons for the GST rate increase. The tax hike is an important revenue move that will provide Singapore with additional resources to meet its growing healthcare expenditures and to take better care of the growing number of seniors, he said.

Mr Wong noted that the Government has been expanding support including in the areas of healthcare, social and ageing needs. It also wants to improve social mobility, invest in skills upgrading and green the economy and city.

“To achieve all this, we will need more government spending – on a structural and recurring basis.”

That is why, apart from increasing the GST, he had also announced increases in the personal income tax and property tax, among other measures, noted Mr Wong.

“This is how, as a responsible government, we plan ahead and meet our future needs in a sustainable way.”

Remote video URL

Mr Wong said that for those who ask the Government to delay the GST rate increase, the Assurance Package “in effect does precisely that, for the majority of households”.

He also highlighted the GST Voucher (GSTV) scheme – “another important design feature of the GST system in Singapore”, which helps lower- to middle-income households defray a significant part of their GST expenses permanently. Apart from the voucher scheme, the Government also continues to absorb GST for publicly subsidised healthcare and education.

“After putting together the permanent GSTV and the GST absorption – what we have is an overall GST system that taxes consumption in a fair and effective manner,” said Mr Wong. “In effect, we have a multi-tiered GST system, one that is tiered by income levels, with lower-income households paying a much lower effective GST rate than higher-income households.”

He noted that on average, the bottom 10 per cent of households – which include many retiree households without income – do not pay any GST at all after the permanent offsets.

Even after the GST increase, the effective GST rate for households in the first three income deciles remains unchanged at below 3 per cent, which means the GST increase will not negatively impact them, he added.

The full impact of the GST will be borne largely by high-income households, as well as tourists and foreigners based here, said Mr Wong. This is also the group that contributes the biggest share to net GST revenues from households and individuals, he added.

He said: “We have designed our GST system carefully to achieve these outcomes. And as the inflationary outlook evolves, we will continue to monitor our scheme parameters to ensure that we uphold and maintain these objectives.”

“The GST is therefore a key part of our fair and progressive system of taxes and transfers – that takes care of the less well-off, and ensures that those who are better off contribute their fair share in revenues.”

Mr Wong also explained another proposed amendment in the Bill, which updates the GST treatment of travel-arranging services to be based on the “place of belonging rule” from Jan 1, 2023. Under the changes, if the customer belongs in Singapore, the travel arranging service, such as the facilitation of accommodation bookings, will be standard-rated. 

Travel-arranging services would qualify for zero-rating, or zero per cent of GST, only if the services are supplied to a consumer outside of Singapore, and directly benefits people who either belong outside of Singapore or are GST-registered in Singapore.

Mr Wong said this amendment will also ensure consistent GST treatment for travel-arranging services, regardless of whether they are rendered by local or overseas providers.

Other amendments include changes in the transitional rules in the GST Act for greater clarity in rules application; refining the rules for taxing low-value goods and services to prevent double taxation, provide tax certainty and ease the compliance burden of businesses; as well as the introduction of criminal sanctions to counter Missing Trader Fraud schemes.

Remote video URL

In a speech rounding up the debate, Mr Wong addressed concerns from MPs about why the GST increase was going ahead as planned, and why alternative measures would not be feasible.

He acknowledged the inflationary pressures and challenging economic environment but noted that the economy and labour markets are still holding steady here while the resident unemployment rate has recovered to pre-pandemic levels.

He added that inflation rates are unlikely to go back to what they were over the past decade, and that the Government had rolled out support packages to tackle inflation.

Mr Wong said alternative ideas had been considered carefully by the Government and debated rigorously in Parliament. Increasing other taxes such as the personal income tax, property tax or corporate tax would not be feasible as this could affect Singapore’s attractiveness to investors and businesses, among others.

As for suggestions to use more from the past reserves, or slow down the accumulation of reserves, this would mean leaving less for the next generation and is not the responsible thing to do, he added.

“We will not just go for politically expedient measures that may very well end up being unviable or unsustainable,” said Mr Wong. “Instead, we focus our efforts on designing effective policies to benefit all Singaporeans.”

The Bill was passed on Monday evening, with nine Workers’ Party MPs and two Progress Singapore Party Non-Constituency MPs recording their dissent.

Remote video URL

Join ST's Telegram channel and get the latest breaking news delivered to you.