Pros and cons in two-stage GST hike for businesses, say experts

Businesses will incur extra costs from an additional round of changes for a two-stage goods and services tax (GST) rate increase, but they will also appreciate the phased implementation as operating cost pressures add up, panellists at a post-Budget roundtable discussion said on Monday.

Likewise, consumers will ap-preciate having it in two stages as each increase will be less immediate and less painful, Deloitte indirect tax and corporate secretarial services lead Richard Mackender said at the panel, which was organised by The Straits Times and UOB.

Last Friday, Finance Minister Lawrence Wong had said in his maiden Budget speech that the planned 2 percentage point GST hike would be delayed and increased by one percentage point each time in 2023 and 2024.

Singapore Business Federation chief executive Lam Yi Young said the announcement was a bit of a pleasant surprise, as many people had been expecting that the hike would be imposed earlier.

Singapore first announced a planned 2 percentage point GST increase from 7 per cent to 9 per cent in 2018, but it was delayed due to the Covid-19 pandemic.

Mr Lam said the move helps the companies a lot and gives them more time to prepare - especially at a time when they are under tremendous cost pressure, with the higher costs of electricity and logistics now.

In his speech, Mr Wong had said that the added revenue from the new tax measures would help to fund growing healthcare expenditure and social spending.

Panel moderator Vikram Khanna, who is associate editor at ST, noted that with a two-step hike, the revenue takes longer to kick in.

He added that the $1 million taxable turnover threshold for compulsory GST registration for companies in Singapore is much higher than in other countries, and questioned if it should be lowered.

Mr Mackender said the threshold was set that way to reduce compliance costs for businesses and to keep the tax base at those companies that are sophisticated enough to be able to put systems in place to deal with it.

In the light of whether that threshold is still sustainable in today's environment, "there is a case to be explored on whether that should move", he said.

"And if Singapore explores where revenue is going to come from in the future, then it is something that, I am sure, the policymakers would want to think about."

UOB economist Barnabas Gan said that even if the threshold is considered high, GST revenue is still a sizeable share of revenue for the Government.

National Trades Union Congress assistant secretary-general Desmond Choo said the focus should remain on helping businesses do what they need to grow their pie, rather than load administrative costs on them.

"And, hopefully, they get to that $1 million range."