It has been more than two decades since Singapore last increased its Goods and Services Tax (GST) rate from 5% to 7%. In Budget 2018, it was announced that the Singapore government was planning yet another rate hike, but the date when the increase would take place was still uncertain at that time in view of the economic conditions then. Ultimately, any increase in taxes will certainly bring some kind of difficulties for those who will be affected.
For a consumption tax like GST, it is necessary for the government to give people and businesses an adequate time to adjust and adapt to the changes. Those in the lower-income and vulnerable sectors must be particularly provided with some assistance.
So, read on as we’ll walk you through for you to have a closer look into what the upcoming GST rate hike will be and how it will affect people and businesses.
Singapore’s current GST rate
At present, the GST rate in Singapore is 7%. This means that businesses, which are GST-registered, need to account for GST at 7% on every sale of goods and services in the country, unless the sale can be zero-rated or exempted in accordance with the GST law.
Singapore’s GST rate is currently one of the lowest among the double-digit rates in numerous developed economies around the globe. Nonetheless, while the country’s rate for consumption tax is one of the lowest globally, GST still managed to be the government’s second largest source of tax revenue for years.
Reason behind the hike
The Singapore government plans to increase the country’s GST rate from 7% to 9% sometime between 2021 and 2025. The intention to raise the rate in the near future was first announced in February 2018 and was expected to have signaled consumers and businesses to prepare for the earliest implementable date. However, as the COVID-19 pandemic shook the economic foundation of many countries around the world, the GST rate hike in Singapore has been moved to sometime between 2022 and 2025.
Despite the change in the implementing period, the premise and rationale for increasing the GST in the country has never changed. The rate hike has always been geared towards helping the government increase its financial capabilities, especially since spending on healthcare, social, infrastructure, and security has been mounting for years.
Even before the pandemic came, Singapore has been already running an operating deficit in five out of the last seven years. The coming of the COVID-19 health crisis has further reinforced the significance of continued investment in the healthcare system while simultaneously emphasising the need to restore the depleted reserves used to keep the country afloat through pandemic support measures.
Potential impact of the hike
While the impact of the GST rate hike may vary, it is generally expected to be felt far and wide across the population. To mitigate the potential effects of the rate increase on the Singaporean households, the government has promised to put in place a $6 billion Assurance Package that will be deployed once the rate hike kicks in.
The majority of the households in the country is set to receive offsets that will cover at least five years’ worth of additional expenses that they may incur following the implementation of the higher GST rate. This assurance package as well as the long-standing GST voucher scheme are expected to cushion the impacts that the Singaporeans will experience due to the GST increase.
For companies, on the other hand, the GST rate hike is not expected to become much of a concern in terms of cost. Most GST-registered businesses are able to recover the taxes they incur on their purchases. The only potential impact that these businesses need to keep an eye on is the higher penalties for non-compliance that may come with a higher GST – especially since penalties are imposed on the value of the tax underpaid or overclaimed in general. Ultimately, the best solution for these businesses is to adopt an efficient and robust GST reporting process.
Conclusion
The GST rate hike is generally expected to bring different kinds of changes and impacts on both the consumer population and the business sector. In fact, both households and businesses have to remain prepared. So, if you need professional assistance to help you with your GST compliance, Max Lewis Consultants Pte Ltd is the firm you are looking for. We have GST assisted self help kit (GST ASK) services in Singapore that will help you meet all your GST-related needs.
Aside from GST compliance, we will also help you expand and enhance the operations of your business with our wide range of other services, including transfer pricing advisory, local and international tax planning, and asset and business valuation. Do not hesitate to enquire with us today to learn more about our highly trusted services.