GST hike unavoidable, will probably take place in 2023

[The_King]

SINGAPORE: We know tax increases are on the cards in Singapore. The Government had earlier announced the GST hike in Parliament in 2018, to be implemented sometime in this term of government.

The question is when it will happen. But after a year wrought by a deadly pandemic that saw Singapore tap on billions in our reserves, this is more likely to happen in 2023, rather than 2024 or 2025.

 

The pandemic has devastated our economies and the livelihoods of our people.  Our national Budget has not been spared either. 

There are some exceptions but with a collapsed world economy, tourism and domestic demand, many companies will see lower profit margins, leading to shortfalls in projected taxes and other forms of government revenues.

 

While Singapore’s GDP is expected to grow by 4 to 6 per cent this year according to the Trade and Industry Ministry, firms and households expect support from the Government given the poor outlook.

 

The timing of the GST hike will very much depend on the pandemic situation, which is still very fluid.

Global vaccinations are progressing slower than expected, as advanced countries grapple with the need to ramp up healthcare delivery systems.

Worse, we are still witnessing record infections in many countries including Malaysia, Japan and the US, where fresh curbs have been slapped on.

 

Far from flattening the curve, the seven-day average of new daily global cases have been up an uptrend, reaching new highs this month of almost 800,000.

There are also remaining uncertainties including whether the COVID-19 vaccines prevent transmission, how long immunity lasts and how long more international borders will stay shut if new waves of infections continue.

SINGAPORE’S RECOVERY UNDER PRESSURE

Although Singapore has shifted into Phase 3, as a small and open economy reliant on global connections, the pace of our recovery will depend on how much other countries can bring down infection numbers, and whether international borders can gradually reopen.

So long as lockdowns are still prevalent, our aviation and tourism industries will remain in the doldrums. Singapore’s rebound will be muted if we rely mainly on propping up the domestic economy to tread water.

 

The gradual recovery of our economy should take place towards the second half of the year. The irony is that Singapore’s COVID-19 numbers may increase with more imported cases when that happens but should not be a cause for immediate alarm. 

HOW DETAILS OF THE GST HIKE MAY BE ANNOUNCED

Deputy Prime Minister (DPM) and Finance Minister Heng Swee Keat dedicated substantial time in February 2020 to explain why Singapore cannot defer the GST hike. He emphasised the need to fund broad–based increases in recurrent health spending, signalling that a responsible government should have “the discipline to raise revenue in a timely manner”.

I expect him to continue this prudent stance but take a calibrated approach to defer the GST hike until 2023, since the COVID-19 situation is unlikely to improve drastically by Budget Day on Feb 16. 

But he may take a leaf from his earlier book to announce then the implementation date of the 2 per cent hike in 2023 to prepare the public for this hard decision.

 

­Delaying the hike further until 2024 or 2025 will seriously weaken Singapore’s fiscal position.  The Government is expected to chalk up a record deficit of about S$50 billion or more in the 2020 fiscal year - the first year of a new term of government - substantially funded from drawing down past reserves.

Both corporate, individual income taxes and GST, are expected to dip in the near term, so long as these tax rates remain unchanged. 

Meanwhile, recurring expenditures, especially healthcare spending, are expected to surge. Healthcare has already risen by 11 per cent annually from 2012 to 2017.  This increase itself is expected to exceed the projected additional revenue from a 2 per cent GST hike and it would not be right to use past reserves to fund recurring expenditure.

 

A 2 percentage point GST hike will raise additional government revenue of about 0.7 per cent of GDP per year, DPM Heng had pointed out in 2018. 

A phased increase is more palatable to consumers but creates additional compliance hassle for firms already grappling with the challenges wrought by COVID-19 who must make the adjustments twice.

 

Here again, the chances are that the Government may a leaf from the last GST hike in 2007 to bite the bullet and go for the full 2 percentage point hike. This will provide greater certainty for businesses.

OTHER TAXES COULD ALSO BE CONSIDERED

The Singapore Government could take a calibrated approach and consider imposing other tax increases.

However, in the context of a global economic downturn, the Singapore Government is unlikely to hike corporate income taxes or personal income taxes, given the dampening effects on businesses still struggling to find growth and on Singapore’s overall international competitiveness in attracting foreign direct investments and ability to support jobs.

Within the Asia-Pacific region, Singapore and Hong Kong lead the pack in having the lowest headline corporate tax rates of 17 per cent and 16.5 per cent respectively.

These rates have been maintained for more than a decade while neighbouring Asia-Pacific countries have been gradually lowering their corporate tax rates over these years to narrow the gaps.

Indonesia dropped theirs from 25 per cent to 22 per cent for 2021 and to 20 per cent in 2022 just last year – a rate on par with Vietnam, Thailand and Cambodia’s.

To take a drastic approach to hike our corporate tax rate and reverse the trend of our gradual decline in rates over the past 40 years will not be wise in this environment, nor are there many historical precedents.

There is one bright spot that might help with boosting government coffers. Among all the bad news, the property market has proven to be surprisingly resilient, suggesting the market has huge liquidity.

 

The cooling measures over 2013, 2018 and more recent changes might have tempered speculation, putting the market on stronger footing. This strong performance by the property market suggests this sector may provide a strong tax base should the Government decide to raise wealth taxes rather than income tax.

Singapore's local property market is "starting to see renewed positive sentiments and some gathering of momentum in prices", DPM Heng had said on Monday, sparking speculation of more cooling measures.

"We do not want to see the property market run ahead of the underlying economic fundamentals," he added.

There is scope to tax the property market to these ends. Most foreigners tend to buy homes in excess of S$1 million in the Core Central Region.

 

One way to do this is to further enhance the progressivity of the stamp duty regime by tweaking the stamp duty rates for larger houses.

Although the buyer’s stamp duty was raised for residential properties in excess of S$1 million in value in 2018, the Government could add a further increase to residences in excess of S$2 million in value.  This measure should not affect Singaporeans in the lower- and middle-income groups.

Some people have argued to bring back estate duties, removed after 2008.

For deaths prior to this date, estate tax was payable on the principal value of property passed onto beneficiaries, subject to exemptions of S$9 million for residential properties and S$600,000 for non-residential assets. 

If the Government does so, it would be for tax progressiveness rather than fiscal need, given the small amount of taxes collected, the small number of taxpayer base and the fact that it is easy for the ultra-rich to significantly reduce this tax through tax planning.  

Nobody likes taxes, not even Ministers for Finance, as DPM Heng put it. 

But of all the options available, GST, the fourth largest contributor to government revenue after Net Investment Returns Contribution, corporate and personal income taxes, remains the best one.

 

Source: CNA/sl

[The_King]

Nobody likes taxes, not even Ministers for Finance.

 

hahahahahaha same like me, no body like money but we all work for money

[socrates469bc]

i alrdy said at the very beginning last mar, the financial aid given is not targeted and will go to waste, resulting in future tax increases to finance/replenish the govt deficits/coffer.

 

even if the financial aid is targeted, the aid is not sustainable or viable due to the large number of qualified bizs/recipients in the affected economic sectors, namely retail and hospitality related.

 

and the reason for this labor structure outcome can be traced back to 2005's decision to focus on casino economy.

 

alrdy said back then that this economic policy is not workable liao but not one believes.

 

now 15 yrs later, whole country suffers.

 

song bo??????