Increased social spending; Our budget in deficit. Solution: Raise taxes. What tax, you ask? GST comes to mind for most.
Why talk of GST rate increase now?
PM Lee said that Singapore will be raising taxes as government spending on investments and social services grows.
(PAP Awards and Convention 2017, Nov 19 2017 source: Straits Times)
As a result, the MSM and internet chatter has been ablazed on an impending GST rate increase. GST is viewed as the most effective and practical way to increase our coffers due to the reach and ease of implementation. Afterall, this will be our fourth rate increase.
What struck us this time round was the choice of words to reflect the resolve of the government.
1. PM Lee stated that taxes will be raised in time, and this was in reference to the Budget earlier this year that there is a need for higher tax rates or new taxes.
2. He elaborated that "we have to plan ahead, explain to Singaporeans what the money is needed for, and how the money we earn and we spend will benefit everyone, young and old"
Increasing direct taxes (corporate and income taxes) will go against the grain, and GST was the natural choice.
We have discussed about the rate increase to 10% as the optimum rate with our clients. For some perspective, we present the GST rates over the last 23 years from 3% to the current 7%:
Some of you may not know this. When GST was implemented on 1 April 1994 at 3%, the government of the day promised that the rate will not increase for the first 5 years. They held on to the promise steadfastly for more than that. Our first rate increase was 8 years after.
Further, in Budget 2015, one may glean that a GST rate increase will not take place till 2020 or after:
"Based on current projections, the revenue measures we have undertaken will provide sufficiently for the increased spending needs we have planned for till the end of this decade."
For the GST rate increase to happen before Year 2020 may run contrary to the above.
The low hanging fruit points to a GST rate increase imminently.
Taking into account Year 2020, and had we a 20/20 vision, the GST rate may not be increased as yet. (There are several reasons why we think so. But as they brink on the political, and we are not a political blog, we shall reserve our comments here.) Based on Budget 2017, the keywords were: higher tax rates or new taxes. The focus has been on the former (GST rate increase being the natural choice). For now, we shall protend the latter to add that yes, it is likely to be GST, but via other forms of "new" taxes within the GST regime that remains untapped. For example,
- Reverse charge mechanism which is already written in the law, but nothing has been prescribed to date (i.e., rendering it ineffective at the moment).
- Expanding the scope of e-Commerce transactions
Administratively, we note these are more cumbersome to monitor and implement.
Maybe, we might get a new tax altogether. Sugar tax?
The likelihood of a GST rate increase remains high in the near term. For businesses who are new to the GST rate increase, our 20/20 advice? Fail to plan, plan to fail. It is never too early to start planning for the inevitable.
Feel free to leave your comments below to tell us what you think.
If you require any assistance on GST, please feel free to contact us.