SINGAPORE - The goods and services tax (GST) is set to increase from 7 per cent to 9 per cent some time between 2021 and 2025.
This comes as the Government's spending on healthcare, infrastructure and security has gone up and is expected to increase further in the years to come.
Finance Minister Heng Swee Keat made the announcement in his Budget statement in Parliament on Monday (Feb 19).
The exact timing will depend on three factors: the state of Singapore's economy, how much the country's expenditures grow, and how buoyant Singapore's existing taxes are. But Mr Heng said he expected that the Government would need to do so earlier rather than later.
Mr Heng said the GST increase 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".
He said the 2 percentage point increase will provide the Government with revenue of almost 0.7 per cent of Singapore's gross domestic product per year.
GST is a broad-based consumption tax levied on nearly all goods and services in Singapore.
The last time GST was raised was more than a decade ago in 2007, when it went up from 5 per cent to 7 per cent.
The GST hike comes after months of speculation. DBS Bank senior economist Irvin Seah had said in a report by The Straits Times in November that he expected the GST to be raised by 2 percentage points in Budget 2018. He predicted a staggered hike implemented over two years.
Prime Minister Lee Hsien Loong said last year that Singapore will be raising taxes as government spending grows, sparking speculation among economists and tax specialists about the type of increase and when it would kick in.
Nine of 10 economists polled by Reuters predicted an increase, with policymakers flagging the need to increase revenue to meet the future social spending needs of a rapidly ageing population.
On Monday, Mr Heng said the Government will continue to absorb GST on publicly subsidised education and healthcare.
It will also enhance the permanent GST Voucher scheme when the GST is increased, to provide more help to lower-income households and seniors. About $800 million is disbursed ever year currently under this scheme. The Government will be topping up the GST Voucher fund by $2 billion this year.
There will also be an offset package for a period to help Singaporeans adjust to the GST increase when it happens. Lower- and middle-income households will receive more support.
Mr Heng said more details of the GST increase will be released once the timing for its implementation is determined.