Singapore raises GST for first time in 15 years, taxes ultra-wealthy more to support elderly, tackle climate change
- Delivering 2022 budget, Finance Minister Lawrence Wong announces 2 percentage point GST raise alongside increases to personal income, property and vehicle tax
- Prime Minister Lee Hsien Loong’s government foreshadowed plans to raise the GST in 2018, but the plan has been put off until now due to the Covid-19 pandemic
Unveiling the 2022 budget in parliament, Wong said the goods and services tax (GST) hike would take place in two steps – with an increase from the current 7 per cent to 8 per cent on 1 January 2023, and subsequently to 9 per cent on 1 January 2024.
Alongside this rate hike, Wong also announced plans to increase personal income, property and vehicle taxes – measures aimed at the ultra-wealthy. This will eventually add S$600 million ($447 million) a year to state coffers.
The country’s current S$5 per tonne carbon tax will also rise fivefold in 2024, and subsequently be increased until it reaches up to S$80 per tonne by 2030.
“Revenue from the increase in GST will go towards supporting our health care expenditure and taking care of our seniors,” Wong said.
“No one likes to talk about taxes, but there are no painless solutions. Ultimately, every need must be paid by someone, every dollar not paid by one person will have to be made up by someone else, either today or in the future.”
To soften the blow of the GST hike for the low-income and middle classes, the government will scale up a voucher scheme that will now be worth some S$6.6 billion from S$6 billion previously. Among other rebates, all adult citizens will receive between S$700 and $1,600 over the next five years.
Selina Ling, the head of research and strategy at Singapore’s OCBC Bank, said the changes were unlikely to affect the republic’s competitiveness.
“The carbon tax hike trajectory is very ambitious and may be a bit of a shock for companies, but still a move in the right direction from a sustainability perspective,” she told This Week in Asia after Wong’s speech.
“The other taxes are mainly personal and wealth related, so they should not affect competitiveness,” she said.
Wong said government expenditure was expected to increase to more than 20 per cent of GDP by 2030, at which point one in four Singaporeans would be 65 or older. Without the tax hikes, the city state would “not have enough to cover the additional spending needs”, he said.
Health care expenditure could hit S$27 billion in 2030, up from S$11.3 billion in 2019.
Wong said the latest tax adjustments would “help to raise additional revenue, and also contribute to a fairer revenue structure”.
“Everyone chips in and contributes to a vibrant economy and strengthens the social compact, but those with greater means contribute a larger share,” Wong told lawmakers.
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The GST was first introduced in 1994, during the tenure of the former prime minister Goh Chok Tong, at a rate of 3 per cent. In 2003, the rate was increased to 4 per cent, and a year later it was hiked to 5 per cent.
Debate over the need to raise the tax goes back to the early 2010s, with critics arguing that the government should use more of its vast foreign reserves to fund social expenditures.
For every dollar we spend on public services, about 80 cents is funded by tax
In his speech, Wong said returns from the reserves were already contributing some S$17 billion annually to government revenue – about 3.5 per cent of GDP.
“For every dollar we spend on public services, about 80 cents is funded by tax and the remaining 20 cents is funded through the [net investment returns from the reserves],” Wong said.
For the country’s super-wealthy – the top 1.2 per cent of personal income taxpayers – Wong said the top-tier marginal personal income tax rate would be increased starting from the Year of Assessment 2024.
For resident individuals, the portion of chargeable income in excess of S$500,000 up to $1 million will be taxed at 23 per cent, while the portion of chargeable income in excess of $1 million will be taxed at 24 per cent. The country’s top-tier marginal income tax rate currently stands at 22 per cent.
Those who own homes used for investments would from 2024 pay 12 to 36 per cent in home property taxes compared to the 10 to 20 per cent now.
Homes occupied by their owners would also see taxes increase on the portion of annual value in excess of S$30,000, from 4 to 16 per cent now to 6 to 32 per cent in 2024. Wong said this would affect the top 7 per cent of such homeowners. The minister also announced a hike in taxes for luxury cars.
Foreign labour rules tightened
Among other measures announced on Friday was a further tightening of foreign labour policies, a third-rail issue in the country of 5.45 million people.
The minimum qualifying salary for employment passes – those that fall in the professional, managerial, executive, and technical (PMET) job categories – would be increased from S$4,500 to S$5,000 starting September.
For S passes or mid-level skilled workers, the minimum wage would also be upped to S$3,000 from S$2,500.
This is the third round of tightening since the pandemic began. Wong said Singapore had to continually adjust its rules to ensure its foreign and local workforces complemented each other but stressed that the city state remained open and welcomed talent from around the world.
Economists welcomed the GST hike.
Ling from OCBC Bank said the increase was not to be sniffed at as it would add S$3 billion annually to the government coffers.
Singapore to raise GST for first time in decade despite surplus
Making the increase “sooner rather than later” was preferable since the government had to balance its budget over each of its electoral terms, she said.
Each term typically lasts five years and the government is now in the second year of its current term. It started the term with a deficit of S$5 billion – or 0.9 per cent of GDP – last year while this budget is projected to clock a S$3 billion deficit, or 0.5 per cent of GDP.
