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Goods and services tax to rise to 9% in Singapore

The goods and services tax (GST) in Singapore will rise to 9% some time between 2021 and 2025, the city state's finance minister has announced.20 Feb 2018

In his budget speech before Singapore's parliament, Heng Swee Keat also confirmed plans to apply the GST to "imported services" from 1 January 2020.

The GST was first introduced in Singapore in 1994, at a rate of 3%. The last rate increase came in 2007 when the tax was increased to 7%. The GST is levied on goods and services supplied in Singapore, and on the import of goods worth over S$400 ($304). Cheaper goods, goods that are exported, and international services are zero-rated.

Heng Swee Keat said that a rise in the GST rate is needed to fund increases in "healthcare, security and other social spending".

"This GST increase is 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," the minister said. "Increasing GST by two percentage points will provide us with revenue of almost 0.7% of GDP per year. This boost in revenues will be vital in closing this gap. We will continue to manage our expenditures and the need for other future revenue measures carefully, and plan ahead early for our overall revenue and expenditure needs."

The precise timing of when the increased rate will take effect will "depend on the state of the economy, how much our expenditures grow, and how buoyant our existing taxes are", Heng said. However, he said it is likely that the new 9% rate will be introduced "earlier rather than later" between 2021 and 2025.

Heng said the Singaporean government would apply the GST rate increase "in a progressive manner".

"First, we will continue to absorb GST on publicly-subsidised education and healthcare," Heng said. "Second, we will enhance the permanent GST Voucher (GSTV) scheme when the GST is increased, so as to provide more help to lower-income households and seniors… Third, we will also implement an offset package for a period to help Singaporeans adjust to the GST increase. Lower- and middle-income households will receive more support. We will provide more details once we have determined the timing of the GST increase."

In addition to raising the GST rate to 9%, the scope of the GST will also be expanded to apply to imported services. That change will apply from 1 January 2020 and will ensure Singapore's tax system "remains fair and resilient in a digital economy", Heng said in his speech.

"Today, [business to business (B2B)] services such as consultancy and marketing purchased from overseas suppliers are not subject to GST," the minister said. "Local consumers also do not pay GST when they download apps and music from overseas [in business to consumer (B2C) arrangements]. This change will ensure that imported and local services are accorded the same treatment." 

"For the import of goods, there are international discussions on how GST can apply. We will review this before deciding on the measure to take," he said.

Tax law expert Valerie Wu based in the Singapore office of Pinsent Masons, the law firm behind Out-Law.com, said that overseas suppliers which have establishments in Singapore need not pay the new tax. She said the move comes after industry consultations by the Ministry of Finance and the Inland Revenue Authority of Singapore, which are set to continue.

B2B imported services will be taxed under a reverse charge mechanism, while B2C imported services will be taxed under an overseas vendor registration model.

Technology law expert Bryan Tan of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, said that the GST rate rise was widely expected as part of Singapore's government move towards a more progressive tax regime.