Singapore poised for first sales tax hike in more than a decade

• Finance minister to deliver 2018 budget speech on 19Feb 
• Most analysts expect first rise in GST rate since 2007
• Tax net may also be widened to include more e-commerce

 Singapore (Reuters) - Singapore, a city-state famed for the low-tax model that helped transform it from a gritty port town to an Asian Manhattan, is expected to put something unusual in this year’s government budget announcement: a tax hike.

Nine of 10 economists polled by Reuters think authorities on 19 February will unveil the first rise in the goods and services tax (GST) since 2007. Policymakers have flagged the need to increase revenue to meet future social spending needs of a rapidly ageing population.

Economists say Finance Minister Heng Swee Keat might also make tweaks to taxes on e-commerce retailers such as Amazon.com Inc, wealth and sugar when he presents the budget, at 0730 GMT on 19 February, for the year starting April 1.

Any tax measures would come after Singapore in 2017 had its fastest economic growth in three years, estimated at 3.5%.

“Strong economic growth is a good pull factor supporting the tax hike,” said Singapore’s United Overseas Bank economist Francis Tan.

He expects GST to be increased by 1%age point this year to 8%, followed by another 1%age point hike next year.

Tan added that there’s an “urgent need” to shift more towards indirect taxes as the tax base for personal income tax could become smaller over the longer term given Singapore’s demographic challenge. While the rate for Singapore’s consumption tax is one of the world’s lowest, GST is still the government’s second largest source of tax revenue, behind corporate tax.

Singapore introduced its GST in 1994, with a 3% rate. This was raised to 4% in 2003 and 5% in 2004, then to 7% in 2007.

Some economists including HSBC’s Jingyang Chen, who expects a 2%age point hike to be announced on Monday, said a higher GST could be accompanied by measures to ease the burden for lower-income families, such as cash transfers and vouchers.

OTHER MEASURES COMING?

Eight of the 10 economists polled expect the government to widen the net on e-commerce transactions subject to the GST.

Currently, Singapore consumers pay 7% GST on their purchases from Singapore-based online retailers. In contrast, they pay no GST on goods purchased from overseas suppliers if the value of the imported goods is below S$ 400 ($302.40).

Several economists also suggested there could additional taxes on wealth, such as an increase in annual property taxes, as well as higher rates on alcohol and tobacco products or even a new tax on sugar consumption.

Credit Suisse economist Michael Wan estimates that a 2% point increase to the GST would add around 0.6% of GDP to net government revenues annually, after taking into account possible offsetting measures to cushion the impact on lower income households.

Economists estimate a 2% point rise in GST could boost Singapore’s headline inflation rate by 1.0-1.5%age points and core inflation - the measure closely watched by policymakers - by even more.

“If the MAS (Monetary Authority of Singapore) sees longer-term inflation risks after GST is implemented, then it would factor that into its policy decisions,” said HSBC’s Chen.