Singapore—As part of the announcement of the national Budget in Parliament on Tuesday (Feb 16), Finance Minister Heng Swee Keat said that the GST rate increase will not take effect this year, due to current economic conditions.
It could be moved to sometime between 2022 and 2025, depending on the economic outlook, he added.
Following this announcement, analysts are saying that timing the GST hike is a catch-22 situation, according to the Business Times (BT).
Setting a schedule for the hike could prove to be a challenge for the Government, which will need to balance fiscal and political pressure with recessionary pressure.
Most of the tax analysts BT spoke to said the increase could be scheduled for 2023, while others say it could be either late next year or in 2024.
The indirect tax leader at Deloitte Singapore, Richard Mackender, believes that 2023 may be when the increase takes effect.
“We do not anticipate that the GST rate would be raised in a recessionary environment.
However, 2023 is perhaps far enough out that Singapore’s dynamic and open economy could be growing, and so could perhaps tolerate a GST rate increase,” BT quotes him as saying.
The Singapore practice leader and head of tax at Grant Thornton, David Sandison, is also forecasting the hike to take effect in 2023, although he is quoted as saying the hike would only be by one per cent and not two.
He said, “There is no doubt that we have yet to see the actual cost of the fallout from the pandemic, and businesses … may only be starting to see the first rays of sunshine in 2022.”
And while increasing the GST could add S$3 billion in yearly revenues, this could ramp down demand from the consumers’ side, which would put a stop to “any hoped-for economic recovery in a very fragile economic situation.”
Mr Heng, also the country’s Deputy Prime Minister, first announced the hike in 2018, for the purpose of providing health care needs in the future.
He said the current seven per cent rate would be raised to nine per cent sometime between 2021 and 2025.
Last year, at the onset of the Covid-19 pandemic, Mr Heng announced that the hike would be delayed, but not indefinitely.
The fallout from the pandemic exacted a toll on the economy, shrinking it by 5.4 per cent and causing the country’s most serious recession on record.
However, a marked improvement is expected this year, with a growth forecast between 4 to 6 per cent expected.
If this proves to be the case, some analysts believe the GST hike could occur as soon as the second half of next year, Irvin Seah, a senior economist at DBS, told BT.
DBS is predicting that Singapore’s economy will grow by 5.5 per cent growth.
Certain conditions need to be met for this to happen, including continuous successful vaccination efforts in the country. The pandemic should also not get more severe in the region as well.
However, other analysts say the hike could occur even later.
According to Mr Lam Kok Shang, who is partner and head of indirect tax at KPMG Singapore, said that certain key sectors such as aviation and travel will remain uncertain for the next two years.
Therefore, by 2024, the majority of countries should have finished vaccinating its citizens and travel restrictions are expected to have been eased.
If the hike is delayed after 2023, this could be problematic for the Government, as yearly GST collections are already expected to be lower by 14 per cent because of the pandemic.
“Even before the pandemic, Singapore had been running an operating deficit in five out of the last seven years, wherein our operating expenditure exceeded operating revenue. We rely heavily on the net investment returns to maintain a balanced budget,” BT quotes Yeo Kai Eng, indirect tax leader at EY Asean, as saying.
The GST accounts for 21 per cent of Singapore’s tax revenue.
According to DBS’ Mr Seah, if it does not increase in the next few years, this would negatively affect the fiscal spending of the Government.
“For example, a lot of infrastructure projects we have would be deferred. The fiscal resources would be stretched and spread more thinly as well, so they won’t be able to afford broad-based, generous Budget measures.”
This could also affect social welfare programmes, including those for health care for the elderly, as well as education.
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