SINGAPORE – The debate on relying on the goods and services tax (GST) hike versus counting on other mechanisms to generate revenue misses the point, said Finance Minister Lawrence Wong during a post-Budget roundtable organised by The Straits Times and The Business Times on Monday (March 14).
The GST increase needs to be considered together with other options, he added, as spending needs go up and the funding gap increases.
The minister said the GST hike alone does not yield enough revenue for the Government to address that funding gap.
During the discussion, which was moderated by Straits Times associate editor Vikram Khanna, Mr Wong also elaborated on why certain other methods to generate revenue were not chosen – such as increasing personal income tax, corporate tax or introducing estate tax.
In his Budget speech on Feb 18, Mr Wong had announced that the planned goods and services tax hike would be delayed, and the rate would be increased by one percentage point each year in 2023 and 2024.
When asked on Monday if the Finance Ministry had considered alternative measures, Mr Wong said: “It’s certainly a question I’ve had to deal with a lot after the Budget, and I’ve consistently told everyone, we’ve considered all of these alternatives.”
He noted that current expenditure is about 18 per cent of gross domestic product (GDP), and is expected to increase to 20 per cent of GDP or more by 2030.
While 2 per cent of GDP may sound like a small figure, it is about $10 billion in absolute numbers using current GDP figures, he said, adding that the GST rate increase will yield only about $3.5 billion a year.
If instead of the GST rate increase, the task of generating more revenue was placed on personal or corporate income tax, “it would be unbearable”, said Mr Wong.
It would also have a huge impact on Singapore’s overall competitiveness. In addition, increasing personal income taxes would mean the middle- or upper middle-income groups would have to pay more as a small group of top earners are unlikely to bear the entire load, he said.
Another common objection to the GST increase – that it will hurt the poor – is also not valid because of the enhanced GST Voucher scheme which will effectively neutralise the impact of the tax increase on low-income groups, said Mr Wong.
When asked by Mr Khanna if the threshold at which GST can be charged by companies could be lowered to broaden the tax base, Mr Wong said it was a judgment call to balance between revenue needs and compliance costs, especially for smaller businesses.
Singapore’s threshold is currently at an annual turnover of $1 million, while some other countries have set a lower bar. For example, in Malaysia, it is at RM500,000 (S$163,000).
Mr Wong added: “With all the changes that are happening already – the cost increases, the impact of supply chains, the cost of raw materials – smaller businesses are the ones that are hurting the most. So if we were to impose this on them, they would be the ones to suffer.”