On February 8, 2022, Finance Minister Lawrence Wong delivered his Budget speech, which primarily focused on the tax changes that are to be expected in the coming months and years. One key highlight in the address is the delay of the anticipated increase in Singapore’s Goods and Services Tax (GST) to 2023.
The government has previously hinted at the need to raise revenue through new taxes or increases to current tax rates to meet growing long-term expenditures, especially in the healthcare sector.
Now that Budget 2022 has been finally announced, many people may have started wondering what the new tax proposals would look like and how they would affect industries in the long run. To give you some idea, this article lays down some of the essential information you should know about Budget 2022’s planned GST rate increase.
Expected GST Increase to Take Place in 2023 and 2024
Currently, the standard rate of GST in Singapore is 7%. But under Budget 2022, the government plans to increase said GST rate to 8% from January 1, 2023, and 9% from January 1, 2024. The delay in the increase of GST rate and its split into two stages is said to be the government’s way to cushion the impact of the hike, especially on vulnerable sectors.
According to the Finance Minister, the revenue obtained from the GST increase will support Singapore’s healthcare and senior care expenditures. The said GST revenue by itself will not likely be enough to cover the country’s additional healthcare spending brought about by the global health crisis. For this reason, the government found it necessary to make changes not only on the GST but also on other taxes, such as property tax, vehicle tax, and personal income tax.
Rationale Behind Delaying The Two-Step GST Increase
According to the Finance Minister himself, the purpose of delaying the anticipated GST rate increase until 2023 is to help Singaporeans prepare for the hike better and mitigate its impacts on businesses and consumers. The government has considered its current situation in outlining its tax proposals.
With the ongoing COVID-19 pandemic, geopolitical tensions, inflationary pressures, and global supply chain crises, the government found it necessary to balance the State’s pressing demand for additional revenue and the taxpayers’ need to recover.
As mentioned, before Budget 2022 was announced, the GST rate hike was already anticipated by many Singaporeans. Some experts were particularly concerned that the increase will primarily affect non-GST registered businesses and GST-registered businesses in specific sectors like residential property developers, insurance companies, and banks.
The government considered these concerns on businesses and consumers when it decided to postpone the GST rate hike and implement it in two steps. Additionally, in further efforts to soften the impacts of the GST increase, particularly on lower-to-middle income households, the government has reassured that it will provide an additional S$640 million to the S$6.6 billion Assurance Package already in place since 2020.
The enhanced Assurance Package will provide Singaporeans significant payouts over the next five years in the following specific amounts:
- Each adult Singaporean shall receive cash payouts in the total amount of S$700 to S$1,600.
- All Singaporean seniors and children shall receive MediSave increases in the total amount of S$450.
- All Singaporean households shall receive two portions of CDC vouchers worth S$200 in 2023 and 2024.
- Eligible seniors shall receive a special GSTV-Cash or a Senior’s Bonus in the total amount of S$600 to S$900.
- Eligible HDB households shall receive extra U-Save rebates in the total amount of S$300 to S$570, depending on the type of flat they have.
For most Singaporean households, the Assurance Package will cover at least five years of their higher GST expenditures. The offsets, on the other hand, will cover almost ten years’ worth of higher GST expenditures for low-income households.
In essence, there is an excellent chance that the increases in GST rate in the coming years will lead to it becoming the next biggest contributor to Singapore’s tax coffers, next to corporate income tax. Given such increases, along with the GST system’s overall tax design and the government’s recent efforts to bring more goods and services within the GST scope, this tax’s contribution is only expected to grow over time.
The postponement of the GST increase to 2023 is expected to help Singaporeans prepare for the anticipated tax increase ultimately. However, despite its promising contribution, it would be inevitable for the GST rate hike to affect several sectors, especially when the world is still recovering from the ramifications of the pandemic.
If your company is one of the many businesses that have been affected by the health crisis, and you need assistance regarding your GST, feel free to reach out to us here at Max Lewis Consultants Pte Ltd, as we provide a trusted GST assisted self-help kit for businesses.
Apart from GST compliance, we deliver a wide variety of services that will help you streamline your business operations and top up your revenues, including valuation and transfer pricing services in Singapore. We also offer employee shares option services in Singapore for companies that wish to gain more tax advantages and achieve excellent employee retention and productivity. To learn more about our reliable services, do not hesitate to contact us anytime.