All You Need To Know About GST and 2024’s GST Hike

This was originally posted on Planner Bee.

The Goods and Services Tax (GST) is a consumption tax that is put on nearly all goods and services in Singapore. It’s similar to the Value-Added Tax (VAT) you find in other countries.

GST was first introduced in Singapore in 1994 at 3%. The GST rate has progressively increased over the years, going from 7% to 8% on January 1, 2023, and will be 9% on January 1, 2024.

Why do we have to pay GST?

According to Singapore’s Ministry of Finance (MOF), the tax dollars collected go towards public spending in areas such as healthcare, education, and security.

Out of the S$49.6 billion in taxes that the Inland Revenue Authority of Singapore — an agency under the MOF — collected in the financial year 2020/21, S$10.3 billion was collected from the GST, about a fifth of total taxes collected.

The taxes from GST are mainly used to subsidise services for middle- and lower-income families in Singapore. For example, Singaporeans get up to a 75% medication subsidy at specialist clinics and polyclinics. Part of the reason why the GST is going up is because of Singapore’s ageing population. The government needs more money to sustain the same level of healthcare subsidies.

GST hike in 2023

The GST hike was first announced in 2018. The government said then that it would raise the rate from 7% to 9% sometime between 2021 and 2025.

The initial plan to increase the GST in 2021 was shelved due to the Covid-19 pandemic. However, as the economy recovers, the government revealed in Budget 2022 that the 8% GST will kick in on January 1, 2023.

To help Singaporeans cope with the increment, the Government pledged to continue to absorb GST on publicly subsidised healthcare and education. Along with it was also an addition of S$640 million to the S$6 billion Assurance Package (AP), first announced in 2020, and an improved version of the GST Voucher (GSTV) scheme.

Under the enhanced package, every adult Singaporean received cash payouts of between S$700 and S$1,600, and eligible seniors were given a special GSTV – Cash (Seniors’ Bonus) of between S$600 and S$900. All Singaporean children and seniors also received MediSave top-ups of S$450.

Eligible Housing Board households were given additional U-Save rebates of S$330 to S$570 depending on their flat type to cushion the GST hike impact.

GST hike in 2024

The government has taken further steps to mitigate the impact of the GST hike, which will see an increase of 1% from 8% to 9% kick in from January 1, 2024.

An additional S$1.1 billion Cost-of-Living Package was announced earlier in the year. This will come in the form of:

• Additional AP cash special payment of S$150 – S$200 for 2.5 million eligible Singaporeans in December 2023
• Extra S$200 CDC vouchers for every Singaporean household in 2024
• A one-off 0.5-month S&CC rebate for 950,000 Singaporean HDB households in January 2024
• Additional S$20 U-Save rebates per quarter from January 2024 to December 2025.

This is on top of the AP cash of S$200 – S$600 for eligible Singaporeans, S$500 CDC vouchers for each household, and U-Save rebates of S$130 – S$210. The AP Seniors’ Bonus for 2024 ranges from S$200 – S$300, and the AP Medisave top-up will be S$150.

Coping with a higher GST rate

During Budget 2022, the Assurance Package for GST was announced to cushion the impact of the planned GST increase in 2023. This also brings the AP’s total amount to more than S$10 billion, all used to support Singaporeans during these trying times.

Further enhancements to the permanent GST Voucher scheme were also announced to provide continuing help to defray the GST expenses of lower- to middle-income Singaporean households, beyond the transitional support covered by AP. You can check how much utility rebates your family will get on the U-Save website.

Read more: What is the Consumer Price Index, and How Does it Affect Me?

Singapore’s GST rate vs. other countries

Singapore’s current GST rate of 7% is one of the lowest in the world. According to consultancy KPMG, the global average GST rate is about 19%, and 11.6% in Asia in 2021.

Source: Global VAT Compliance BV

But there are Asian countries that have their sales tax lower than Singapore’s. Hong Kong has a 0% sales tax, and both Malaysia and Taiwan’s sales tax is 5%. For India, the country’s GST are categorised into different slabs, and can go up to 28%.

The US does not have a standardised GST rate. Instead, they have sales taxes varying from 2.9% to 7.25%, depending on the state. Local and city governments may also impose an additional sales tax that ranges from 1% to 5%.

How the GST hike will affect you

According to Singapore’s Department of Statistics, Singaporean households spent an average of S$4,906 a month on goods and services in the 2017/18 financial year. If this amount was before GST was calculated, the average household paid S$392.48 based on an 8% GST. That would be S$441.54 on a 9% GST. A 1% hike means their monthly expenses will increase by S$49.06 every month.

However, the GST hike will be more evident in wealthier households. The average monthly household expenditure among the top 20th percentile of households in Singapore was S$7,570 in the 2017/18 financial year. This group of households was paying S$605.60 in GST at the 8% rate but will have to fork out S$75.70 more each month at a 9% GST rate.

Current actual expenditure is likely to be higher since the official statistics are dated. Essentially, you will be paying S$1 more for every S$100 you spend. For example, if you spend an average of S$16,000 a year, you would be paying S$160 more on a 9% GST rate as compared to the current 8%.

Given that inflation has remained high, raising the prices of goods and services, a 1% GST rate increase would be tough for lower- and middle-income families to manage.

Here are some tips on how to manage your money right now — such as finding the best savings accounts, saving enough for retirement, and making the best of your subscriptions.