Island-state bows to pressure as it seeks to modify planned GST rise

PUBLISHED : Wednesday, 04 December, 2002, 12:00am
UPDATED : Wednesday, 04 December, 2002, 12:00am

The Singapore government will announce tomorrow a significant modification of its plans to raise the goods and services tax (GST) to 5 per cent from 3 per cent from next month.

Deputy Prime Minister Lee Hsien Loong is expected to tell parliament either that the increase will be introduced in stages, or that extra financial assistance will be provided to help poorer citizens weather the changes. Both options represent a departure from the course originally plotted by Mr Lee, who is also finance minister, when he unveiled the GST rise with his inaugural Budget last May.

At that stage, only limited aid was planned, but officials said it would be sufficient to ensure no one was made worse off by the tax change for at least five years.

The decision to modify the policy - part of a wider tax revamp that will see direct personal and income taxes reduced - is a rare departure for an administration that typically does not deviate from its stated plans.

Mr Lee's switch reflects official concern about the fragile state of the economy, which is flirting with a technical recession as the end of the year approaches. It also comes after the regressive tax changes - which will increase the share of state funds taken from the poorest - provoked widespread concern from citizens, who argued that the GST proposal was either unfair or ill-timed.

After a difficult two years that have combined a deep recession with an unpopular series of fee and fare increases, ministers are keen to avoid charges that the People's Action Party government is 'uncaring'.

Prime Minister Goh Chok Tong indicated last month that a rethink was in the offing and that he favoured staggering the GST increase, with a rise to 4 per cent from January and then to 5 per cent from 2004.

The approach combines the merits of achieving the increase to 5 per cent eventually, but accommodating some of the criticisms that have been levelled.