Singapore Indefinitely Postpones VAT Increase Due to COVID-19 Impact

Full Postponement of Next Year's Implementation
Tax Increase to Secure Welfare Funding
Officially Raised from 7% to 9% Two Years Ago
Economic Impact Unavoidable Due to COVID-19 Spread
Deputy Prime Minister Hung: "Not a Complete Cancellation"

[Asia Economy Singapore Correspondent Seo Jumi] The Singapore government has postponed its plan to raise the Goods and Services Tax (GST) scheduled to take effect next year. Although the global economy was expected to breathe a sigh of relief due to the truce in the US-China trade war earlier this year, the outbreak of the novel coronavirus disease (COVID-19) has struck the world, causing changes in the economic situation. The Singapore government had formalized a plan in February 2018's '2018 Budget Plan' to increase the GST rate from 7% to 9% between 2021 and 2025, but decided to postpone it indefinitely after two years.

According to the daily Straits Times on the 10th, the Singapore government recently announced the '2020 Budget' and decided not to proceed with the GST hike. Heng Swee Keat, Singapore's Deputy Prime Minister, said, "Considering the economic situation, we have decided not to proceed at this time." He added, "If the GST is raised, a compensation package providing cash payments of 700 to 1,600 Singapore dollars to citizens over five years would be implemented." This was a strategy to offset the shock to consumption caused by the GST increase through a compensation program.

When Singapore raised the GST rate from 5% to 7% in 2007, it provided a compensation package worth 4 billion Singapore dollars (approximately 3.45 trillion Korean won) to all citizens to reduce the temporary market shock, including benefits for education expenses and utility bill support.

This GST increase plan was announced in 2018. It was based on the judgment that more tax revenue was needed to secure funding for welfare sectors directly related to the health of the people. The government emphasized that Singapore's public healthcare expenditure relative to GDP is lower than that of other developed countries, and that the GST rate is also low.

The changing population structure of Singapore, which is aging, was also a reason for the need to increase tax revenue. According to the '2019 Population Report' released by the Singapore Department of Statistics, the life expectancy is 84.8 years, one of the highest in the world, while the proportion of the working-age population aged 20 to 64 was only 63.1%, down 1.3 percentage points from 2009. The proportion of elderly people aged 65 and over expanded significantly from 9.9% to 16.0% during the same period. As a result, it was concluded that tax increases are essential to prepare for an aging society and to increase welfare budgets.

However, Singapore's economic growth rate last year was 0.7%, far below the expected 2.1%. Furthermore, the outbreak of COVID-19 starting early this year inevitably dealt a severe blow to Singapore's economy. Deputy Prime Minister Heng emphasized, however, that "the originally planned increase has not been completely scrapped."

Instead of raising the tax rate, the Singapore government plans to invest 5.6 billion Singapore dollars (approximately 480 billion Korean won) to respond to COVID-19. It has designated five sectors?tourism, aviation, retail, food and beverage, and transportation?as the most vulnerable industries and will prepare support measures. It also announced plans to directly use 800 million Singapore dollars through health funds to combat the virus.

However, the Singapore government has started imposing GST on overseas digital content such as music and video streaming, which was included in the 2018 increase plan, from early this year. Digital service companies with annual sales exceeding 1 million dollars and domestic sales over 100,000 dollars, such as Netflix and Spotify, are subject to this. It is expected that applying GST to overseas digital services will generate an additional 90 million Singapore dollars in revenue. However, some experts have raised concerns that the Singapore government's measures could become a barrier for low-income groups to access digital culture.

This content was produced with the assistance of AI translation services.