Editor's Note: The exact timeline of the GST increase was subsequently announced after this article was published. It would go up in two stages: First to 8% on 1 January 2023, and then to 9% on 1 January 2024.In Budget 2022, the government will announce the timeline for their planned Goods and Services Tax (GST) increase from 7% to 9%. This two-percentage point increase is significant, not only because of its quantum (it represents an increase of 28% of payable GST) as well as who it affects – everyone, from working adults, students, the unemployed and retirees.
Cost of Living Across the Board to Rise
Because GST is chargeable on essentials like food, electricity, transport, and more, the most obvious impact of a GST hike is that one’s daily expenses will rise. For many lower-income Singaporeans, the majority of their income will be spent on fixed expenses, and are not easily avoided, such as with discretionary spending.
Affect Cost Decisions for Big Ticket Items
For large expenses like home renovation works, the GST increase would affect the overall budget that can be spent, since more of their money would go to paying GST.
For example, if someone has $40,000 to spend on their renovations, their actual budget would actually be $37,200, since $2,800 would go to the 7% GST. With the increase, their actual budget would drop further to $36,400, with $3,600 going to GST.
This might affect businesses, who might see a reduction in contract sizes as consumers grapple with the GST increase.
Retirement Plans Require a Relook
For many people, their retirement needs are projected with a margin built-in to account for inflation. This number will now need to be adjusted a further 2% higher at least due to GST.
Thus, Singaporeans would now find themselves needing to set aside even more today in order to have a similar spending power compared to before the GST hike.
Smaller or Newer Services Businesses to Benefit
You might be aware that only companies with taxable turnover of more than $1 million at the end of any calendar year need to register and charge GST.
Due to the way GST is passed along the value chain, this means that companies that offer services in particular would benefit the most from not needing to register for GST, compared to retailers or product distributors.
Thus, the GST increase would make it even more attractive to engage the services of small companies or those that are new, and avoid needing to pay 9% extra in GST.
