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Explainer: Almost every country has some form of GST, so what makes S’pore’s unique?

SINGAPORE — The Government is expected to announce more details of a long planned increase in the goods and services tax (GST) during Friday’s (Feb 18) Budget 2022 statement. Prime Minister Lee Hsien Loong said in a New Year’s message that it was time to “start moving” on the hike.

Details of the upcoming hike in goods and services tax (GST) are expected in Budget 2022 to be delivered on Feb 18.
Details of the upcoming hike in goods and services tax (GST) are expected in Budget 2022 to be delivered on Feb 18.
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  • Around the world, 170 countries and territories have implemented some form of goods and services tax (GST)
  • Singapore's GST is among the lowest in the world
  • It is also perhaps the only country that complements its consumption tax with a permanent scheme that directly offsets tax for lower-income families
  • That has helped to offset a large part of the regressive features of the GST, experts say

SINGAPORE — The Government is expected to announce more details of a long planned increase in the goods and services tax (GST) during Friday’s (Feb 18) Budget 2022 statement. Prime Minister Lee Hsien Loong said in a New Year’s message that it was time to “start moving” on the hike.

Last week, Finance Minister Lawrence Wong posted two Facebook videos explaining the need to raise the GST, reiterating that the Government will need more revenue to fund Singapore’s growing healthcare needs and other social spending. 

The GST hike from 7 to 9 per cent was first foreshadowed in 2018 during a Budget speech by then-Finance Minister Heng Swee Keat, who said that the increase would happen sometime between 2021 and 2025.

It was held off last year owing to the impact of Covid-19 on the economy.

Details on when the tax increase will start or whether it will be staggered — as it was when it was raised by one percentage point at a time in 2003 and 2004 — are still unclear. 

But the Government has already made certain that the hike will come with a S$6 billion Assurance Package that would, in effect, offset the additional GST expenses by at least five years for most Singaporeans.

TODAY takes a look at how GST works and how Singapore’s version is unique.

HOW DOES SINGAPORE'S GST COMPARE WITH SUCH TAXES IN OTHER JURISDICTIONS?

Almost every jurisdiction around the world has some form of consumption tax, though many other regimes call it a value-added tax. 

As of November 2020, 170 countries and territories had implemented such a tax. 

Notable exceptions include the United States (which has a similar consumption tax imposed at the state level) and Malaysia (which abolished its GST in 2018 in favour of sales and service taxes). Hong Kong, meanwhile, has no consumption tax at all.

In Singapore, the GST is fairly straightforward. The tax is applied at a standard rate to almost all goods and services with few exemptions, making it efficient to administer. 

Many other countries have tiered tax rates, where essential goods are charged at a lower tax than luxury items, said Mr Kor Bing Keong, GST leader at accountancy firm PwC Singapore.

Singapore’s GST rate is among the lowest in the world. Even after the increase to 9 per cent, that will put the GST rate here below Asia’s average of 11.6 per cent and the average across developed nations of 19.2 per cent, according to data from accounting firm KPMG. 

Another unique feature of Singapore’s GST is the revenue threshold that triggers the need to register to impose the tax. 

Companies in Singapore need to charge GST only when their taxable turnover for the past 12 months exceeds S$1 million. In Australia, that figure is A$75,000 (S$72,250), the United Kingdom’s is £85,000 (S$154,900), while some other countries do not set a threshold at all.

“That’s very high,” said Mr Richard Mackender, who leads the GST service line for Deloitte Singapore and Southeast Asia. “It keeps a lot of small and medium enterprise businesses out of the tax net.”

HOW ELSE IS THE GST UNIQUE?

During Budget 2012, Singapore moved to make the GST voucher scheme a permanent feature.

It is given in the form of cash and utilities rebates for the lower- and middle-income groups, and MediSave top-ups for the elderly.

Experts TODAY spoke to said that they were not aware of any other jurisdiction that offsets consumption taxes in this manner.

Instead, some countries have implemented one-off interventions rather than a permanent scheme. Others have also chosen to do so through more indirect forms of social spending.

IS THE GST A REGRESSIVE TAX?

The GST, by itself, is typically seen as a regressive tax.

As Mr Kor explains: “Say a household, rich or poor, consumes S$100 of utilities. (A GST charge of) S$7, to a low-income family, is a large sum. To a high-income family, it’s very small.”

But the Government has always stressed that the GST should be seen hand-in-hand with the GST voucher scheme.

Deputy Prime Minister Heng Swee Keat said during the Budget 2020 debate that with the voucher scheme, the bottom 40 per cent of resident households are estimated to account for less than 10 per cent of the net GST borne by all households and individuals.

Foreigners residing in Singapore, tourists and the top 20 per cent of households are estimated to account for 60 per cent of the net GST.

This is after taking into account GST refunded under the Tourist Refund Scheme for goods bought here for consumption abroad.

In response to TODAY’s queries, the Ministry of Finance said that Singapore’s overall tax and government transfers system is “fair and progressive”.

On average, lower-income Singaporean households get about S$4 in benefits for every S$1 of tax paid, and the middle-income get S$2 for every S$1 of tax paid.

“This compares favourably with other jurisdictions, such as the UK and Finland, where middle-income households are estimated to receive S$1.25 of benefits for every dollar of tax paid,” the ministry said.

WHY RAISE THE GST RATHER THAN OTHER TAXES?

Critics have argued that the Government could increase the corporate income tax rather than the GST to boost its revenues.

Mr Christopher Gee, who heads the Governance and Economy Department at the Institute of Policy Studies, believes it is “completely inappropriate” to compare the two.

"If let's say you overtax production, you might inadvertently start to affect the product of the economy," he said. Businesses may find it difficult to stay sustainable and pay the same amount of corporate tax the next year.

Raising corporate income tax also would have an immediate effect on Singapore’s attractiveness to foreign businesses that can easily move to a different country so as to pay lower taxes, he warned.

Another idea that has been mooted is to introduce a wealth tax

Mr Kor said, however, that wealth taxes are generally not meant as a tool to generate revenue, and more to address the rich-poor divide, which in Singapore takes the form of personal income tax or property-related taxes.

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