SINGAPORE: A previously announced hike in the Goods and Services Tax (GST) will happen between 2022 and 2025, and “sooner rather than later” depending on the economic outlook, said Deputy Prime Minister Heng Swee Keat in his Budget 2021 speech on Tuesday (Feb 16).
“Without the GST rate increase, we will not be able to meet our rising recurrent needs, in particular healthcare spending,” he said.
“While we are fortunate to be able to tap on our reserves to respond to the COVID-19 crisis, it is not tenable for the Government to run persistent budget deficits outside periods of crisis.”
As it happened: DPM Heng Swee Keat's Budget 2021 speech
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The Government expects an overall Budget deficit of S$64.9 billion, or 13.9 per cent of gross domestic product for the 2020 financial year, the largest Budget deficit since the country’s independence, said Mr Heng, who is also Finance Minister.
This year, the Government expects an overall deficit of S$11 billion, or 2.2 per cent of GDP.
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“No finance minister likes to talk about tax increases, certainly not when the pandemic is still raging around the world.
“But we do this because we plan for the long-term and do not shy away from explaining to fellow citizens why we need to make tough but necessary decisions to ensure that we have enough to provide for our nation’s future,” he said.
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The Government announced that it planned to raise the GST from 7 to 9 per cent in the 2018 Budget. However, Mr Heng said in last year’s Budget that the GST rate would not take place in 2021, in light of COVID-19’s effect on the economy.
In this year’s speech, the Deputy Prime Minister noted that the Government will ensure that Singapore’s overall taxes and transfers system “remains fair and progressive”.
GST on publicly subsidised education and healthcare will continue to be fully absorbed, while a previously announced S$6 billion Assurance Package will cushion the GST increase for the majority of Singaporean households “by at least five years”.
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Lower-income Singaporeans will receive more support, with those living in one- to three-room HDB flats receiving about 10 years’ worth of additional GST expenses incurred.
Lower- and middle-income households can also rely on the permanent GST Voucher scheme for assistance, which will be enhanced when the GST rate increase takes place.
“Through this scheme, we are able to provide targeted support for those who need help most,” said Mr Heng.
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Foreigners residing in Singapore, tourists and the top 20 per cent of resident households are estimated to bear more than 60 per cent of the net GST on households and individuals, even after accounting for the GST Voucher scheme and GST refunded under the Tourist Refund Scheme.
“If you consider our entire system of taxes and benefits, it is a progressive one.
“In 2020, the top 20 per cent of Singaporean households paid 56 per cent of the taxes and received 11 per cent of the benefits, whereas the bottom 20 per cent paid 9 per cent of the taxes and received 27 per cent of the benefits,” he said.