The Singaporean government will increase the GST rate from 7% to 9% in just a few years’ time. Although many may decry this move, there are many good reasons as to why Singapore’s GST rate had to be raised. Read on to find out more about why this is the case.

Singapore GST Rate

In 1994, the Singaporean government introduced the Goods and Services Tax (GST). GST is a tax imposed on domestic consumption. GST is a multi-stage tax which is to be collected at every stage of the production and distribution chain. GST is paid whenever money is spent on any goods or services, hence the name of the tax. However, sales and leases of residential properties, financial services, and exports of goods and international services will not have any GST charged.

 

History of GST

GST was introduced as part of a government reform which planned to change the core of Singapore’s tax system from an income-based system to a consumption-based one. Furthermore, the additional revenue that the government would collect through GST meant that individual income tax, corporate income tax, and property tax rates could all be reduced. The consumption-based tax system was also believed to create a more resilient tax base.

When GST was introduced, it was imposed at a 3% rate. This figure was increased to 4% in 2003. This 4% rate did not last for long, as it was subsequently raised to 5% in 2004, then 7% in 2007.

 

Increase of GST rate

For the first time since 2007, the Singaporean government now plans to increase the GST rate. This increase was announced in Singapore’s Budget 2018. According to Finance Minister Heng Swee Keat, the Singaporean government opted to increase the country’s GST rate from 7% to 9% at a point between 2021 and 2025 because it would boost the country’s overall revenues. This echoes the rationale behind the 1994 introduction of GST, and the facts prove this line of thought to be true – the Singaporean economy grew by 10.93% in 1994, the year GST was introduced. Thus, it is reasonable to conclude that a GST rate increase would benefit the Singaporean economy.

Heng also said that the GST rate increase was the preferable alternative to raising corporate tax rates, as that could potentially drive businesses away from Singapore. This would be disastrous for the country, as Singapore is one of the world’s major corporate hubs. According to the World Bank’s Ease of Doing Business Index, Singapore has been ranked as one of the world’s two easiest countries to conduct business in since 2006. In the most recent rankings, Singapore was placed second, only behind New Zealand. Thousands of international companies have major branches in Singapore. Factors other than Singapore’s low corporate tax rate that draw these companies to Singapore include Singapore’s political stability, relative lack of corruption, openness to foreign investment, highly developed infrastructure, and technological advancement. As international business is one of the cornerstones of Singapore’s economy, the government did not want to risk losing the country’s advantages in this regard by raising the corporate tax rate.

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E A S I E R • F A S T E R • B E T T E R

Given all the information already mentioned, it is not difficult to understand why the decision was made to raise the GST rate instead. Although people living in Singapore may initially bristle at the prospect of a GST rate increase, the facts clearly show that this increase is for the good of the country. It should not take long for Singapore to begin to benefit from this decision.