Singapore is gearing up for an impending increase in sales tax as the government takes measures to secure funds for anticipated social spending in the coming years. Starting from the new year, the goods and services tax (GST) will be raised by one percentage point to 9%, marking the second phase of a planned rate hike. Earlier this year, the sales tax was already raised from 7% to 8% after remaining unchanged for 15 years.
The impending hike in sales tax comes at a time when living costs are already on the rise, leading opposition lawmakers to call for a delay in the increase. Although Singapore's core inflation has moderated to 3.2% in November from previous heights of 5.5% earlier in the year, it still remains persistently high. The central bank predicts that core inflation will average between 2.5% and 3.5% in 2024.
Government officials justify the tax increment by highlighting the need to strengthen state finances in anticipation of Singapore's rapidly ageing population and the subsequent rise in healthcare costs. By 2030, it is estimated that around one-quarter of the country's population will be aged 65 or older. Deputy Prime Minister Lawrence Wong previously stated that postponing the GST increase would only aggravate future problems, leaving the government with fewer resources to address the nation's expanding fiscal needs.
In an effort to alleviate the burden on households, the government has rolled out an "assurance package" worth over S$10 billion ($7.55 billion). As part of this relief measure, every adult Singaporean received a payout ranging from S$200 to S$800 earlier this month.
In response to the impending tax hikes, some retailers have pledged to absorb the additional costs for the time being. IKEA, for instance, has committed to absorbing the 1% hike without specifying when this initiative will end. Similarly, supermarket chain FairPrice Group has announced that it will absorb the tax increase on 500 essential items like rice and vegetables.
As Singapore prepares for a future where healthcare costs are projected to increase significantly, the government believes that the sales tax hike is a necessary step to bolster state finances. While opposition voices call for a delay, the government's focus remains on addressing the challenges posed by the country's ageing population and rising social expenditure.