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The exact timing of the upcoming two per cent Goods and Services Tax (GST) hike is as of yet, still uncertain, but government support will help to mitigate its impact on Singapore households, Second Minister for Finance Indranee Rajah said in Parliament on Jan. 11.

Upcoming GST hike

The idea of a GST increase was first mentioned during Budget 2018 by Deputy Prime Minister Heng Swee Keat, who announced that it would rise from seven per cent to nine per cent between 2021 and 2025.

Due to the state of the economy during the Covid-19 pandemic, Heng shared during Budget 2020 that the GST will not be raised in 2021.

It will, however, take place between 2022 and 2025, "sooner rather than later".

In his recent New Year's message, Prime Minister Lee Hsien Loong mentioned the impending GST hike, and hinted that the issue will soon be revisited.

Assurance Package will delay impact of GST increase on households

Now that we've come to 2022, Indranee shared that Singapore needs "sound fiscal foundations". She said that GST, along with income and wealth taxes, is a part of the country's sound revenue structure which will help support households, businesses, healthcare, and education.

This was in response to a question from Member of Parliament Liang Eng Hwa on whether the GST increase remains a part of the government's strategy for fiscal sustainability.

Liang also asked about possible measures to mitigate the impact of the GST hike on Singaporeans, especially those from lower income households.

Indranee replied that this will be "significantly" mitigated by a S$6 billion Assurance Package, which will provide cash payouts of between S$700 and S$1,600 to adult Singaporeans over the next five years.

This will effectively delay the impact of the GST increase for the majority of Singaporean households till five years later, Indranee said.

Lower income households will also receive more support from the package, and the GST hike's impact will be delayed by around 10 years for them.

Possible to delay GST increase?

Liang also asked in a supplementary question if delaying the GST increase was a consideration for the government, "so as to avoid adding on to the inflationary pressure".

Indranee responded that previously, the government had shared that the exact timing the GST increase would be imposed would depend on the state of the economy, size of expenditures and existing tax buoyancy, before the pandemic happened.

The delay of the GST increase in 2021 was thus "in direct recognition of the hardship that was felt by people because of pandemic".

Indranee added:

"So it's not something we can put off forever, but the exact timing is something that we have to think about.

In deciding the timing for the GST hike, we are carefully considering all the overall economic conditions. The economy is recovering steadily, and barring fresh disruptions, it should grow in step with global economic recovery. And we expect GDP to grow by three to five per cent in 2022."

Indranee mentioned the Assurance Package again, saying that it is designed to buffer the lower-income and the majority of households from the delay of the raise.

"The government is directly supplementing them so that they won't feel the impact," Indranee added, highlighting that the date that the hike takes effect and the date the impact is felt is "two separate things".

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