Singapore Increased Its Good and Services Tax for 2023: What to Know
As of January 1, 2023, Singapore officially increased its goods and services tax (GST). While this increase will mostly affect people in Singapore, others around the world may also notice its effects. As such, it’s smart to understand the increase, future increases, and the reasons behind these increases.
Previously, Singapore’s GST rate was 7%. As of 2023, the rate has increased to 8%. There is another planned hike on January 1, 2024, when it will increase to 9%.
In addition to the rate increase, the goods subject to the GST have increased. Previously, only imported goods with a value of at least S$400 were subject to the GST. Now, low-value imported goods are also subject to the tax. This means that all imported goods, including those bought online, will now be subject to the tax.
That may increase costs for consumers and hurt companies that regularly import low-value goods into the country.
Additionally, certain businesses must register for the goods and service tax and charge it on all taxable goods. Specifically, any business with an annual turnover of at least S$1 million (US$742,000) must do this.
Who Will Be the Most Affected
Experts predict that middle-income Singaporeans will notice the effects of the GST increase the most. This is because they can’t afford the higher prices, yet they don’t qualify for rebates or financial aid.
That being said, the lowest earners will also feel the effects of the GST increase. After all, those with lower incomes tend to have less money to save, meaning more of their money is immediately spent. Since the tax increase will affect spending money on goods, they will notice an immediate effect. To make matters worse, this category of workers has seen the slowest rise in wages of any group in the country.
Programs to Mitigate the Impact
While low-wage earners will notice the impact of the GST hike the most, Singapore has accounted for this. The Assurance Package disburses payments over the course of five years to cushion the impact. As many as 2.9 million adults will receive cash payments based on property ownership and income. An extra S$1.4 billion has been added to the S$6.6-billion fund, for a total of S$8 billion.
The Effect on Businesses
Any increase in GST has an obvious effect on businesses. Consumers have to spend more on each item they purchase, so they may purchase fewer goods. The largest effects will be felt by businesses with a so-called elastic demand, meaning demand fluctuates based on prices. This includes high-end restaurants and luxury brands. By contrast, businesses selling necessities, such as supermarkets, will be less affected.
Reasons for the Hike
Officials acknowledge that it is impossible to find a “good time” to hike the GST. But the country needs more tax funds for social spending. This is especially true given the aging population along with increased costs of infrastructure and healthcare. Singapore also spent a great deal on public health during the pandemic.
Singapore also cites security and preschool education as priorities for the tax funds.
When the Bill Was Passed
The bill for this GST increase was passed in November. This came despite some critics saying the timing of the increase is bad because of inflation.
For reference, Singapore’s inflation hit a 14-year high in August, reaching 7.5%. Inflation dropped to 6.7% by November. To put that in perspective, the Singaporean central bank suggests 2% inflation to keep prices stable.
Singapore’s GST increased by 1% as of January 1st and will increase by another 1% as of January 1, 2024. The tax increase is most likely to be felt by the middle class and businesses selling non-essential items and services.
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