LDN - Business

Singapore is hiking its sales tax, but not until 2021 or later

[February 19, 2018] By Masayuki Kitano and John Geddie

SINGAPORE (Reuters) - Singapore said its sales tax will rise to 9 percent from 7 percent, but the change will only come "sometime" between 2021 and 2025, making it likely that the increase would kick in after the city-state's next general election.

Instead of getting a GST hike soon, Singaporeans aged 21 and above will get a "hong bao", or Lunar New Year red packet, as Finance Minister Heng Swee Keat announced a "one-off" bonus in 2018 of up to S$300 ($228.50), depending on their income.

The bonus comes after Singapore's trade-reliant economy grew 3.6 percent in 2017, its best pace in three years.

Global economic growth, plus comments by policymakers on the importance of raising revenue to meet future spending needs for Singapore's ageing population, led many analysts to expect that the Goods and Services Tax, kept at 7 percent since 2007, would increase as early as the coming fiscal year.

"The surprise for us was that the planned increase was for a much later period," said Jeff Ng, chief economist Asia for Continuum Economics.

"This eases the need for a future government or administration to announce the GST," Ng said.

Singapore's next general election is due to be held by January 2021. In the last one in 2015, the ruling People's Action Party won 70 percent of the vote, a strong improvement from the 60 percent garnered in 2011.

After announcing the planned GST hike, the finance minister said "the exact timing will depend on the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are. But I expect that we will need to do so earlier rather than later in the period."

Singapore introduced a GST in 1994, with a 3 percent rate. This was raised to 4 percent in 2003 and 5 percent in 2004, then to 7 percent in 2007. The current rate is among the world's lowest for a consumption tax.

CARBON TAX COMING

Besides the plan for raising GST, Heng unveiled other tax measures.

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A Singapore dollar note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

These include increasing the top marginal buyer's stamp duty on residential property worth more than S$1 million effective from Tuesday, raising the excise duty on tobacco products and introducing GST on imported services from 2020.

Coming in 2019 is a carbon tax, which will be S$5 per tonne of greenhouse gas emissions until 2023. The plan is to increase it to between S$10-S$15 per tonne by 2030.

Heng said spending needs will rise across various sectors in coming years, including in healthcare, infrastructure and security.

The government expects average annual healthcare spending to rise from 2.2 percent of GDP currently, to almost 3 percent of GDP over the next decade, he added.

"With an ageing population and an increasing chronic disease burden, the demands on families and Government will rise," the finance minister said. "We will need to spend even more on healthcare."

Heng, one of several cabinet ministers considered a possible successor to Prime Minister Lee Hsien Loong, said in the speech "We must anchor Singapore as a Global-Asia node of technology, innovation and enterprise."

Song Seng Wun, an economist for CIMB private banking, said the one-off "hong bao" bonus was a product of Singapore's economy having a "better than expected outcome" in the last year.

(For a graphic on Singapore's ageing demographics click http://reut.rs/2BzapNH)

($1 = 1.3125 Singapore dollars)

(Additional reporting by Aradhana Aravindan and Fathin Ungku; Editing by Richard Borsuk)

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