Singapore To Raise GST To 7%

by Mary Swire, Tax-News.com, Hong Kong

15 November 2006

Singapore's prime minister, Lee Hsien Loong, told the country's parliament on Monday that GST (goods and services tax) will be increased by 2% to 7% to finance social programs and help people with low incomes.

"Our aim is to help lower-income groups and the elderly. It is not to increase their burdens," said Lee. Full details will be included in the next budget in February, 2007.

"When we implement the GST increase, it's not a GST increase, it's a package which will fully offset the impact of GST for these groups and begin to strengthen the safety nets and tilt the balance in favor of the lower income Singaporeans," he added. He also trailed a possible reduction in income tax rates.

Mr Lee also proposed to change the country's constitution to allow the government access to capital gains on state reserves.

The GST raised about S$4bn in the fiscal year ending March 31, 2006, about 15% of total tax revenue.

The Singapore GST is a tax on domestic consumption and has many similarities to a Value Added Tax. The tax is paid when money is spent on goods or services, including imports. It is a multi-stage tax which is collected at every stage of the production and distribution chain.

"Output tax" is the GST a registered trader charges on his local supplies of goods and services. The tax is collected by him on behalf of the Comptroller of GST. "Input tax" is the GST that the trader has paid on purchases of goods and services for the purpose of his business. The input tax is deductible from output tax to arrive at the GST payable by the trader, or amount to be refunded to him.

GST was first introduced in Singapore on 1 April 1994. The GST rate was increased from 3% to 4% in 2003 and from 4% to 5% in 2004.

GST is levied on goods and services supplied in Singapore by any taxable person in the course or furtherance of a business; and goods imported into Singapore by any person. The "sale and lease of residential properties" and "financial services" are exempt from GST in Singapore.

Recommended