The Goods and Services Tax is expected to increase by two percentage points in Budget 2018 and this would be implemented over a two-year period, according to a report by DBS.
The projected rise in the GST would come amid a challenging fiscal position for Singapore, which had registered three consecutive years of deficit in the primary balance, said DBS Senior Economist Irvin Seah in the report released Tuesday (28 November). The GST was last revised upward on 1 July 2007 from 5 per cent to 7 per cent.
Singapore’s fiscal policy will also become more challenging as the population continues to age, resulting in faster increase in social expenditure than in previous years. In addition, there is a need to invest in infrastructure and human capital to boost Singapore’s economic competitiveness, Seah said.
Given the need to generate more revenue, the government has to price scarce resources efficiently, tap on new sources of tax revenues and cut operating expenditure. Beyond these options, hikes in tax rates will be inevitable, Seah added.
How the GST would be implemented will depend on the prevailing economic conditions. While economic growth in recent quarters has been encouraging after two consecutive years of slow growth, there are pockets of uncertainties in the external environment, which could pose risks to Singapore’s economic performance in 2018, according to the report.
If the GST were to be increased by a percentage point, tax revenue would rise by $1.6 billion to $1.8 billion, or 0.4 per cent of nominal GDP, Seah forecast.
Based on the 2 per cent GST hike scenario, an offset package of at least $4 billion to cushion the impact on consumers and lower-income households could be announced, which will cover more than cover the projected amount of tax revenue derived from the GST increase, he added.