First stage GST hike next year with more to come to fund ageing population
Singapore is increasing its Goods and Services Tax rate for the first time in 15 years announced today in the 2022 Budget. It will be in two steps:
- January 2023 rise from current 7% to 8%; and
- January 2024 rise to 9%.
Singapore’s inflation is forecast to rise to 3.2% in 2022, a recent record. Economists are now concerned any general rise in taxes on consumption could undermine the delicate recover.
The rise would still put Singapore near the lower end of its nearest competitors:
- Japan has a Consumption Tax rate of 10%;
- South Korea’s VAT rate is 10%;
- Vietnam has 10% VAT rate;
- the Philippines has a VAT rate of 12%;
- China has a main VAT rate of 13%; and
- Thailand VAT rate rise to 10% from 7% is scheduled for January 2023.
Rapidly againg population giving rise to spiralling healthcare spending
Singapore’s most recent total fertility rate of 1.14 is below replacement. 15% per cent of the country’s population in 2019 were aged 65 and above. This will increase to about 25 per cent by 2030. What this means is that we have a smaller proportion of the working population contributing for a population that is growing older. As the population ages, annual healthcare spending will rise exponentially; it is expected to rise from 2.1 per cent of GDP today to almost 3 percent of GDP over the next decade.
1 July 2022 missed for January 2023 instead
While the earliest possible date for the GST increase to take place could have been 1 July, having it take effect on Jan 1 next year could give businesses and consumers a little more time to make the necessary preparations, said Selena Ling, OCBC Bank’s head of treasury research and strategy.
This rise would be in tandem with the extension of GST to low-value goods worth up to $400 as well as business-to-consumer imported non-digital services.
In Budget 2020, a $6 billion package was set aside to help cushion the impact of the GST hike when it takes place. It will stave off the impact of the rise by five years for the majority of Singaporeans, and by 10 years for lower-income groups.
To receive our free global VAT and GST news updates, sign-up here.