Singapore Budget 2018: What you need to know about the GST increase, e-tax and carbon tax

GST will be increased from 7% to 9% in the coming years, Singapore’s finance minister announced during his budget speech.
Lianhe Zaobao

Singaporeans will be paying more on the goods and services tax (GST) in the coming years, Finance Minister Heng Swee Keat confirmed during his Budget speech on Monday (Feb 19).

Not only that, a new e-tax will also be implemented on certain digital services purchased from overseas suppliers.

The expected announcement comes as the Government highlighted increased social spending on healthcare, infrastructure and security in recent years.

As Singapore’s population ages and social spending needs surge, economists have predicted that an increase in GST is inevitable.

This will be the first time since 2007 that the GST has been increased in Singapore.

Here’s what you need to know about changes to GST:

1) From 7% to 9%

According to Mr Heng, the GST will be increased progressively from 7 per cent to 9 per cent over the period of 2021 to 2025.

“The exact timing will depend on the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are,” he said.

The hike will mean that GST will form around 0.7 per cent of GDP every year, Mr Heng said.

He said the increase was “necessary because even after exploring various options to manage our future expenditures through prudent spending, saving and borrowing for infrastructure, there is still a gap”.

2) GST Voucher enhanced

To help Singaporeans cope with the hike, Singapore will be enhancing its GST Voucher (GSTV) scheme with a S$2 billion top-up to the GSTV Fund.

Currently, about $800 million is disbursed every year.

There will an offset package implemented during the initial phase of the hike to help Singaporeans adjust, with lower and middle-income households getting more support, Mr Heng said.

3) New e-tax on digital services

GST will be implemented on imported services bought from suppliers based overseas from Jan 1, 2020.

This e-tax will only affect B2B services, such as marketing and IT services, and B2C services, such as apps and video and music streaming.

So don’t worry, your online shopping is not affected yet. Overseas suppliers with establishments in Singapore will also not be affected.

B2B imported services will be taxed via a reverse charge mechanism, which will require the local GST-registered business to account for GST on the services that it imports.

B2C imported services will come under an overseas vendor registration model, which will require e-tax to be paid by overseas vendors whose annual global turnover exceeds $1 million and who make more than $100,000 in the sale of digital services to consumers in Singapore.

This means app stores without a Singapore office will have to register with Iras and collect GST on their services.

Carbon tax

During his speech, Mr Heng also announced that Singapore would be implementing a carbon tax, initially set at $5 per tonne of greenhouse gas emissions from 2019 to 2023, on facilities producing 25,000 tonnes or more of such emissions a year.

This rate, which will be reviewed in 2023, and could be increased to between $10 and $15 per tonne later, he added.

Here’s what we know so far about the carbon tax:

1) Impact on households will be small

The impact of this tax on households’ expenses is expected to be small, at about 1 per cent of total electricity and gas expenses on average.

U-Save rebates will be provided for a period of three years to help HDB households, with eligible households receiving $20 more per year from 2019 to 2021.

As petrol, diesel and compressed natural gas (CNG) already have excise duties, these will not be affected by the carbon tax.

2) Carbon tax revenue to total almost $1 billion over 5 years

Over the next five years, the Government expects carbon tax revenue to total nearly $1 billion.

Mr Heng added that Singapore is prepared spend more than this amount “to support worthwhile projects which deliver the necessary abatement in emissions”.

3) Grants to help companies cope

There will be grants introduced to help companies cope with the tax in the initial phase.

From 2019, funds will be set aside to help companies be more energy efficient, Mr Heng said.

These include schemes such as the Productivity Grant (Energy Efficiency) and the Energy Efficiency Fund. Those who produce greater reduction in emissions will receive more support, he said.

Read also: Singapore must accept slower labour growth, face tax question as it ages: Ravi Menon