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Spending spree on big ticket items before GST hike 'not likely' but some consumers look to lock in savings

SINGAPORE — Software engineer Tan Yu Hui got engaged earlier this week and though he has no plans to get married anytime soon, he is already thinking of bringing forward his wedding-related purchases before stage one of the Goods and Services Tax (GST) hike kicks in. 

Spending spree on big ticket items before GST hike 'not likely' but some consumers look to lock in savings
Mr Tan Yu Hui (right) is planning on making his wedding-related purchases before Jan 1, 2023, when the GST will be raised from 7 to 8 per cent. His betrothed, Dana Yang, 25, is pictured on the left.
  • Ahead of stage one of the Goods and Services Tax (GST) hike next year,  one newly engaged couple plans to bring forward wedding purchases
  • In the past, shoppers in Singapore have tended to frontload their purchases ahead of a GST hike, resulting in spikes in retail sales
  • But experts believe this is likely to be more subdued ahead of this GST increase given it's staggered over two years
  • The relatively weak economic conditions is another factor that might keep spending down, they said

SINGAPORE — Software consultant Tan Yu Hui got engaged earlier this week and though he has no plans to get married anytime soon, he is already thinking of bringing forward his wedding-related purchases before stage one of the Goods and Services Tax (GST) hike kicks in

The 27-year-old is looking into buying the traditional Chinese “Si Dian Jin” betrothal gift — a jewellery set made from gold  — as well as bridal packages and hotel bookings by Jan 1 next year, when the GST will be raised from 7 to 8 per cent. It will move up to 9 per cent a year later.

“The thing is, these are big large purchases that we are going to have to make eventually. If I can save on that 1 or 2 per cent, why not?”

Shoppers in Singapore have tended to frontload their purchases ahead of previous GST hikes to save on paying extra taxes. That has resulted in discernible spikes in retail sales, especially of big-ticket items such as watches, furniture or even cars, where the tax savings would be the greatest.

Yet, experts are not expecting quite the same spending frenzy this time round given the the current economic climate and the fact the upcoming hike is two one percentage point rises spread over two years rather than a one-off jump. 

Among the minority who are strategically planning their purchases is Mr Delane Lim, 36, co-founder of FutuReady Asia, a social enterprise focused on youth and leadership development. 

The thing is, these are big large purchases that we are going to have to make eventually. If I can save on that 1 or 2 per cent, why not?
Software consultant Tan Yu Hui

Mr Lim had wanted to take his time with his company’s office renovation and furniture purchases, but is now planning to have that done before December.

He is also planning to refresh the office equipment — 11 laptops and three cameras due to be thrown out in about two years' time — before the tax hike. 

A training room undergoing renovation at FutuReady Asia's office. Co-founder Delane Lim had wanted to take his time with renovation works but is now planning to have that done before December. Photo: Delane Lim

“We are not GST registered, which means we cannot claim back GST,” he said. “Instead of buying next year, it might be better to buy them this year.”

Mr Lim ran a calculation and found that one percentage point hike could be significant. Had he not brought forward his purchases, the extra GST would come up to about S$2,000 to S$3,000 over all his purchases.

History has shown that Singaporeans are a bargain hunting lot.

In 2007, a day before the GST was raised from 5 per cent to the current 7 per cent, MasterCard data showed that Singaporeans shelled out twice the average daily amount, making it the highest recorded retail spending of the year.

That day, local shoppers spent four times more than the daily average on big-ticket items such as furniture and electrical appliances.

Historically, previous GST hikes have resulted in a surge in retail spending a month before the hike, followed by a sharp decrease the next month, said retail expert Tricia Song, head of research for Southeast Asia at commercial real estate firm CBRE.

In June 2007 hike, retail sales rose 7 per cent month-on-month before plunging 15 per cent the next month, based on the Government’s retail sales index in seasonally adjusted, chained volume terms.

Watches and jewellery saw the greatest spikes, rising 34 per cent before a steep 27 per cent decline. Furniture and household equipment rose 20 per cent followed by a 23 per cent drop.

Motor vehicles sales, too, rose by a modest 5 per cent before a steep decline of 23 per cent, Ms Song pointed out.

Such trends have also been seen in other countries, though they are typically transient, said DBS Bank’s senior economist Irvin Seah.

“Having said that, I don’t expect the current episode to be as drastic as the scenario where the GST is hiked by 2 percentage points at a go,” he said.

Given the staggered nature of the GST hike this time, the jump in prices may not feel as much to consumers as in 2007, when the rate rose from 5 to 7 per cent in one go, Mr Seah said.

“What may happen is that because of the confluence of rising inflation and the GST hike, the consumer may prefer to forgo the purchase,” he said, adding that some may even bring their purchases forward earlier in the year because of inflation.

Besides inflation, OCBC Bank economist Selena Ling said that geopolitical uncertainties, including Russia’s invasion of Ukraine, may prompt consumers to be less bullish in their overall outlook and hence their propensity to consume for now. 

How big the retail spike turns out to be at the end of the year may really depend on the overall economic environment, labour market health and inflation trends, said Ms Ling, who is the bank's head of treasury research and strategy.

Car dealer Abel Eng, general manager of CarBiz, said that he is not anticipating a rush to buy cars before the GST hike kicks in.

Besides, he said, regulatory charges, road taxes and certificates of entitlements which make up a large component cost of a car in Singapore do not attract GST. 

Furthermore, for second hand cars that he sells, the GST charged is applied only on the gross margin and not the full value of the car. That is, it is charged on the selling price minus the price the company paid for the car.

Ms Edna Ng, general manager of watch retailer All Watches, likewise said she is not expecting any spike in sales this year. 

“The economic situation now is different from 2007,” she said. “In 2007, the economy was booming.”

Related topics

GST hike consumers retail economy

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