10 Facts About the GST Hike from 7% to 9% You Need to Know

In the last few months, rumours of an impending GST increase have been the talk of the town: and yesterday, that was finally confirmed during the Budget 2018 speech.

With the rumours, it didn’t catch anyone by surprise, but the timing of the hike does: instead of an instant increase, the hike will occur somewhere between 2021 to 2025. That’s like three years from now, and who knows what’s going to happen by then.

So, what exactly is this increase and what exactly do you need to know?

Here are ten facts about this increase, and GST in general, you’ve got to know, because this is one part of the speech that’s affecting everyone.

What exactly is GST?

To put it broadly, GST is a tax by the Government for any consumption (or you can call it “purchase”) of any goods and service. Tax is required in every country so that we can pay for Government expenses, like the soldiers protecting the country and the firemen saving our lives and properties.

In certain countries, they’re called VAT (Value-added Tax).

The Government doesn’t just get revenue from GST: in FY2017, a total of $11.25 billion were received for GST, while the tax collected from companies, known as Company Income Tax, is at $13.63 billion.

What’s the history of GST?

GST was first implemented in 1993 at 3%, and when it was implemented, corporate tax rate was reduced by 3% to 27%. Of course, you might be thinking that it’s not a good idea to tax the people and reduce company tax, but think far: with lower company tax, there would be more jobs, leading to a better economy in the future.

It’s not an accident that MNCs like Facebook or Google decided to set up bases here, you know.

The first increase occurred in 2003 when it was revised from 3% to 4%, and again to 5% in 2004.

The last revision was made in 2007, with an increase of 2% to 7%.

What’s the difference in the hike in 2007 and now?

In 2007, during the Budget speech, it was announced that the increase would take effect five months after the speech, with effect from 1 July 2007. An offset package (think: GST vouchers and other rebates) of $4 billion for five years were provided to help Singaporeans adapt to the changes.

Back then, most supermarket chains absorbed the 2% increase for one to six months as a form of goodwill and to help lower-income people.

So what are the rumours before the hike?

Last year November, DBS became a fortune-teller and expected the Government to increase GST by 2%. I hope DBS can also provide 4D number, but that’s an article for another day.

In addition to that, DBS Economist Irvin Seah even predicted that it would be “staggered over the next two years”. It’s not exactly correct, but very close: Mr Seah here should give us four digits and we can win something from Singapore Pool’s iBet.

Then came in a CIMB economist who also predicted a near-perfect laser-guided prediction: he believed it be implemented in 2019 (close lah, read on), and use this year’s Budget to explain the rationale for the hike.

Now I wonder if economists always strike 4D.

So, what’s the hike about?

Simply put, GST will increase from 7% to 9%, between 2021 to 2025. It is not certain when the hike will kick in between the five years, but Finance Minister Heng Swee Keat “expects that we will need to do so earlier rather than later in the period.”

The timing of the increase depends on the “state of the economy, how much our expenditures grow and how buoyant our existing taxes are.”

In other words, if we don’t need to spend money and earn more money, it can kick in later. If we need to spend a lot of money and didn’t earn enough money, it’ll kick in earlier.

So stop buying things from overseas and start shopping locally in malls #justsaying

What’s the offset package?

Remember how we receive GST vouchers and rebates when GST increased previously?

Well, this time, there is as well, but this isn’t confirmed yet until the timing of the GST increase has been determined.

In other words, the $100 to $300 ang pao you’re receiving from Ah Gong isn’t about GST lah. Ang pao is ang pao, GST offset package is GST offset package. Don’t 傻傻分不清楚.

Why the need to increase GST?

The simplified answer is that Singapore needs more money to fund expenditures that are increasing.

For example, healthcare expenditure has increased from $3.9 billion in FY2011 to $10.2 billion in FY2018. And with the aging population, this could continue to go up.

Another example cited is our infrastructure (e.g. rail network lah, port lah…etc). In FY2011, the spending is $8.5 billion and in FY2018, it is $20 billion.

Of course there are many other expenditures lah, but you get the idea. Instead of borrowing money, which will put burden on our children and grandchildren (coz they have to work harder), “the responsible way to pay for them is through taxation so that every generation pays its share.”

We are this generation lah 🙁

Why not use Singapore’s reserve funds?

This is pretty chim, so let’s use an example instead.

You have $100, and you invest them to get additional $5 every year. Tapping on the $100 will mean that you might not get $5 every year. That so-called $5 is a lot: in FY2017, it contributed $14.37 billion. Yeah, it’s larger than the GST.

That’s of course the basic idea: you can Google for more information, but the simple answer is this: it’s an easy solution, but not the best solution for the future.

Remember, Singapore always play it safe, because our lives depend on this.

What do the experts say?

According to a partner for GST services in Ernst & Young via Channel NewsAsia, it’s apparently good to inform Singaporeans about the impending hike, as it “will kill off speculation of when the rate hike will happen, and give certainty to the people. Now, people’s lives go on knowing that the hike will happen from 2021.”

PwC Singapore’s Asia Pacific Indirect Tax Leader Koh Soo How said the early announcement “would provide sufficient time” for the Government to explain the rationale behind the hike.

Goody Feed’s resident cat Poppy said that it’ll be best to reduce the GST to 0.08% instead.

In previous announcements, the hikes usually take place within months upon the announcement.

What are the benefits?

Wait, benefits? Well, I’m not referring to you and me, but a bigger picture instead.

According to the same DBS economist mentioned earlier, 1% increase would bring in an additional $1.6 billion to $1.8 billion. Not sure if 2% would be double of that, but you get the idea.

In addition to that, of course, the other way the Government is increasing its revenue is through taxing of digital services  from 2020 and a 10% increase in tobacco tax with immediate effect (though the goal is also to encourage people not to smoke).

Now that you know more about this, what are your thoughts? Do you feel it’s necessary?

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This article was first published on goodyfeed.com

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