SINGAPORE: Singapore announced Monday it would raise its sales tax for the first time in years to support an ageing population, but unexpectedly delayed the measure until at least 2021.
The tiny city-state has long had low taxes. Supporters say this has attracted global companies and wealthy expatriates, and helped to spur its rapid development from a down-at-heel port to an affluent financial hub.
But the model is coming under pressure as the population ages and birth rates remain low, with the government expecting the number of those aged over 65 to double by 2030—meaning authorities have to find more money for healthcare and welfare.
Finance Minister Heng Swee Keat said the goods and services tax (GST) would be increased by two percentage points from 7.0 to 9.0 percent but not until sometime between 2021 and 2025.
Heng also announced that spending on healthcare would increase to Sg$10.2 billion ($7.7 billion) this year, over double the amount spent in 2011, as the government builds new hospitals and other healthcare facilities and raises healthcare subsidies.
“In the coming decade, with an ageing population and an increasing chronic disease burden, the demands on families and government will rise,” Heng said as he unveiled the measure in Singapore’s 2018 budget.
GST, which is levied on everything from buying a TV to visiting a spa, was last raised in 2007.
‘Deferring the pain’
In the budget, Heng also extended sales tax to include “imported services” such as consultancy and marketing with effect from 2020.
Some analysts said the ruling party, which has been in charge for decades, may have decided to delay the GST rise to avoid inflicting economic pain on voters in the country of 5.6 million before elections due by 2021.
“They are deferring the pain to possibly after general elections,” Selena Ling, an economist from Singapore’s
OCBC bank, told local TV station Channel NewsAsia.
But Song Seng Wun, regional economist with CIMB Private Banking, believed the delay was to give the
government time to ramp up spending on healthcare and in other areas, so people understood the GST hike was necessary when it happened.
“Giving a long lead time of at least three years and… in the meantime do what they said they will do, like spending on healthcare and infrastructure—this will soften the blow when the GST is finally hiked,” he said.
Even after the hike, Singapore will still have one of the lowest sales taxes in Asia. Australia and South Korea both have sales taxes of 10 percent, although rival financial hub Hong Kong has no GST.
There was also no increase in personal income tax or corporate tax in the budget.
Infrastructure spending in the budget was hiked to Sg$20 billion for the 2018 fiscal year.
A high-speed train line is to be built between Singapore and the Malaysian capital, a new terminal is expected to be completed at Changi Airport in 2030, and the domestic public transport network will be upgraded.