Singapore is set to raise its goods and services tax in January. Here’s how it will work – CNBC

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The tax on goods and services in Singapore will be increased to 8% in January 2023.

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On January 1, Singapore will raise its goods and services tax, known as GST, from 7% to 8%. It is the first of two planned GST increases, and the second is scheduled for January 2024, when GST is raised from 8% to 9%.

The GST is a consumption tax levied on almost all goods and services in Singapore. From January 1, 2023, GST is levied on low value imported goods worth up to S$400. Currently, only imported goods worth more than S$400 are subject to the GST. With the change, all goods and services imported into Singapore, including imported goods purchased online, will be subject to the tax.

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Singapore-based companies with an annual turnover of more than S$1 million (US$742,000) are required to register for GST and charge GST on all taxable goods at the prevailing rate.

Singapore’s parliament passed the GST amendment bill in November, despite MPs from Singapore’s opposition parties speaking out against the increase, citing poor timing amid inflationary pressures.

Inflation in Singapore reached a 14-year high of 7.5% in August. Inflation has eased somewhat in recent months, with annual inflation reaching 6.7% in November, but that is significantly higher than the 2% inflation recommended by the country’s central bank for overall price stability.

Who will be most affected?

Economists who spoke CNBC had conflicting views on whether the tax increase will hit the country’s lowest income earners harder than others.

Singapore’s Lowest Earners, whose wages are rising the least of all income groupswill also experience the largest increase in household spending as inflation rises, according to DBS.

Low-income people tend to save less and consume more, says Antonio Fatas, an economics professor at INSEAD. “Since this is a tax on consumption, they may feel the immediate effect more,” he said.

Singapore recently has one S $1.4 billion increase to a $6.6 billion fund designed to cushion the impact of the GST increases. Payouts from the Assurance package, now at S$8 billion, will be spread over five years from December 2022. Up to 2.9 million adult Singaporeans will receive cash payouts that vary according to their income and property status.

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The Assurance package is designed to cover at least five years of additional GST expenses for most Singaporean households, and about 10 years for lower-income households, according to Singapore’s Deputy Prime Minister and Finance Minister Lawrence Wong.

Euston Quah, head of economics at Nanyang Technological University, said these offsets will protect low-income households from the impact of the tax increase.

“The lower income group will not be affected as there are compensations, rebates and sufficient transfers for them,” said Quah.

Higher-income people won’t be much affected, Quah said, because they have the resources to continue with their lifestyles.

Middle-income Singaporeans could be most affected by GST increases, as they are not eligible for financial aid and rebates, nor necessarily able to pay higher prices, he said.

Business sectors and price sensitivity

Some business sectors may be affected more than others depending on the “demand elasticity” of the goods and services they provide, Quah said. Elasticity measures how sensitive the demand for a product is to price changes.

Companies that sell products whose demand is highly sensitive to price changes, such as luxury brands and gourmet restaurants, will be more affected by the increase than companies such as supermarkets that sell basic necessities, Quah said.

The Singapore dollar remains a

Ride-hailing services in Singapore are divided in their reactions to the GST hike. Suit wants pass on the increased GST tax to its private drivers, forcing them to shoulder the extra costs, according to The Straits Times. Other ride-hailing services, including Ryde, told The Straits Times commission fees will remain the same.

Grab and Ryde did not immediately respond to CNBC requests for comment.

Ride-hailing company ComfortDelGro told CNBC the company will extend its 15% daily rent waiver until March 31, 2023 to help its drivers cope with the rising cost of living. The commissions remain unchanged.

Most businesses won’t be significantly affected by the increase, though charities and non-profit organizations may be because they cannot claim the GST made for free non-business activities, such as free medical services, said Ajay Kumar Sanganeria, a partner at accounting firm KPMG.

A spike in purchases of big-ticket items is expected prior to the implementation of any GST increase, he added. Customers are making purchases such as furniture and cars before new taxes to avoid paying the extra costs, Sanganeria said.

Why now?

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“It is not hard to realize that Singapore needs to find more fiscally sustainable ways to fund its social, environmental and healthcare needs.”

The number of citizens aged 80 and over has increased by more than 70% since 2012, according to this year’s figures. population reporting. According to the report, by 2030, about one in four Singaporeans will be 65 years or older.

According to Singapore Ministry of Finance, Healthcare spending is expected to rise from S$11.3 billion today to S$27 billion in 2030.

Singapore is one of the fastest aging countries in the world due to low fertility rates and higher life expectancy.

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