Singapore Goods and Services Tax (GST) was increased from 5% to 7% in 2007. The GST has not been increased for the last 13 years, but as the nation plans for higher social expenses with an aging society, The GST is planned to be increased from 7% to 9% sometime between 2021 and 2025.
Is 9% GST too high?
The average GST for OECD and Asia are 19% and 12% respectively. The Philippines has a VAT of 12%. Singapore’s proposed new 9% GST is still lower than all OECD countries and its neighbouring countries in Asia. One exception is Malaysia that scrapped its GST and replaced it to SST.
In many countries, politicians use the GST (a promise of reduction or removal of GST) as a populist tool for an election campaign. For example, in Malaysia, the now-defunct Pakatan Harapan government ran as a populist on the abolishment of the GST and won the election in 2018. However, the country has since run into operational deficit and is now looking reinstatement of the GST to balance the book. In Singapore, populist opposition politician Chee Soon Juan of SDP is also advocating for the removal of the GST.
Can the lower-income households cope with the increase?
There are five different groups of people who pay for GST. They are the low income, the middle income, higher income, working expatriates in Singapore; and the tourists.
It is interesting to note that the tourists, working expatriates and the top 20% higher income bracket pay more than 60% of GST in Singapore.
The low-income group benefits the most out of this as the GST collected is redistributed through a permanent GST voucher scheme. Mr Tharman Shanmugaratnam, Senior Minister of Singapore said, “those who are better off pay, more of the taxes and get less benefits. Those with lower incomes pay some taxes – because everyone must contribute, but they get more of the benefits.
“For every dollar the lower-income group pay in taxes, they get $4 back in benefits. For the middle-income group, every dollar they pay in taxes, they get $2 back in benefits.”
After payouts of the GST vouchers in cash, Medisave and U-save, the cash revenue of the low-income individual will increase by more than 30%, reducing the gap of income inequality as a result.
The illustration below shows the types of benefits from GST which go to the lower-income group.
According to the Department of Statistics, income inequality in Singapore has fallen to its lowest level in 20 years, partly due to government transfers and taxes.
How is the GST Voucher distributed to the lower- income households?
The GST Voucher is given out to the lower income households in three components – Cash, MediSave and U-Save.
They will receive up to $300 cash, up to $450 in their CPF MediSave Accounts; and up to $400 household utilities rebates per year. The payouts will be given out in April 2020, July 2020, October 2020 and January 2021.
Singapore has also topped up the GST Fund with a $6 billion assurance package on top of the permanent GST Voucher Scheme that is already in place this year. An one-off GST Voucher – U-Save Special Payment; and a further GST Voucher – U-Save rebate for larger households with five or more members. Depending on eligibility, each household gets to receive either one of the three vouchers .
Find out more about the GST Voucher Scheme: https://www.gstvoucher.gov.sg/Pages/BudgetAnnouncements.aspx