Goods and Services Tax (Singapore)

Goods and Services Tax (GST) in Singapore is a value added tax (VAT) levied on import of goods, as well as most supplies of goods and services. Exemptions are given for the sales and leases of residential properties, importation and local supply of investment precious metals and most financial services. It was first implemented on 1 January 1994 with 3% rate by the People's Action Party government.

Overview of GST Implementation History

Date	Tax Rate	Description	Source
1 January 1994	3%	Begin collecting GST.
1 January 2003	4%	GST Rate Increased
1 January 2004	5%	GST Rate Increased
1 January 2007	7%	Second Minister of Finance at the time, Tharman Shanmugaratnam, announced on 15 February 2007 that the GST rate will increase to 7%.
1 January 2023	8%	The PAP government originally planned to increase the GST to 9% between 2021 and 2025 but postphoned to 2022 afterwards due to COVID-19 pandemic's impact.
1 January 2024	9%

Controversy

Tax progressivity

As of 2018, 174 of the 193 countries with full UN membership employ a GST/VAT, including all OECD members except the United States. As with all other countries that has GST/VAT in place, critics consider the idea to be a regressive tax, meaning the poor pay more, as a percentage of their income, than the rich. However, defenders contend that GST can be considered a proportional tax if tax payments are expressed as a percentage not of income, but of lifetime consumption; savings and investments are tax-deferred, and when converted to consumption are subjected to GST. Others point out that the more important question to ask is not whether GST is regressive, but whether GST is more regressive than the alternative indirect taxes, namely, sales, excise and turnover tax (not income tax because that is a direct tax). In addition, they argue that what affects poverty and fairness is not the impact of any particular tax, but the impact of the tax structure as a whole, and how tax revenues are redistributed. When GST is combined with progressive taxes, and the revenues distributed to the poor, the total fiscal structure can be progressive.

To maintain the progressive nature of total taxes and transfers on individuals, Singapore reduced income tax on lower-income earners, as well as instituted direct transfer payments to lower-income groups, resulting in an overall lower tax burden for most Singaporean households. These offsets included lower income taxes, lower property taxes, rebates on rental and service & conservancy charges for public housing, and additional subsidies for health, education and community services. As a result of the income tax cuts, additional tax reliefs and rebates in 1994, about 70% of individuals that used to pay income taxes no longer needed to do so.

The Singapore government has argued that the GST on its own is a flat tax, but that it is part of an overall fiscal system that is highly progressive: higher-income earners pay the highest fraction of their income in taxes, and also spend more. When all taxes were taken into account (income tax, property tax, GST and other indirect taxes), the top 10% of households accounted for 38% of the taxes paid, while the top 20% contributed 53% of all taxes. In contrast, lower-income earners receive substantially more transfers than the taxes they pay. Low- and middle-income households effectively pay 'negative' tax. From 2006 to 2010, the second bottom decile of Singaporean households (ranked by income from work) received transfers (net of all taxes paid) amounting to 23% of their income, the 5th decile received transfers that netted off taxes paid, while the effective tax rate for the top decile was 11%. In particular, when the GST rate was raised from 5% to 7% in July 2007, a household in the bottom 20% had to pay additional GST of $370 per year, but received an offset package of $910 per year, in addition to permanent benefits of $1,000 per year.

Calls to exempt basic essentials from GST

Some critics contend that basic essentials such as food and healthcare should be made exempt from GST, to help lower-income households. The government argued that having such exemptions would actually help the higher-income more than poorer Singaporeans, because well-off households usually spend much more on essentials (whether food or healthcare or other basic necessities) than a lower-income household. In addition, lower-income households would not benefit much from such an exemption, as spending on essentials constitutes a small proportion of lower-income household expenditures. For example, for the bottom 20% of households, essential food items comprised only 6% of their total household expenditures; after including all other food items, the total was only 15% of their expenditures.

If essentials were to be exempted from GST, there would be a need to make up for the revenue shortfall through a higher GST rate on other goods and services, which lower-income households would also have to bear. The government argued that the experience of other countries demonstrated that granting exemptions would distort production and consumption decisions and cause a contentious and highly complex process of determining the goods and services that merit exemption. This would increase compliance and administration costs for businesses, and these costs would be passed on to consumers.

In addition, the experience of other countries have shown that exempting or reducing GST on certain items did not mean that tax savings would be passed on to consumers. For example, this idea is in place in Australia, which has a GST rate of 10%. Therefore, the GST should be kept broad-based to keep the GST low and the GST system simple, while help is directly provided to the lower-income through transfers and subsidies. In addition, the government has been absorbing GST in full for all subsidised patients in public hospitals and polyclinics since the GST was introduced in 1994. GST has also been absorbed for all subsidised patients receiving long-term care services.

Calls to reduce the GST rate

In response to the rising cost of living, politicians from opposition parties have called for the GST rate to be reduced. The Singapore government has argued that reducing the rate of GST would benefit the wealthy more than the poor, as the bulk of GST is collected from foreigners and higher-income earners. In 2010, 84.2% of all GST paid was collected from foreigners and the top 40% of Singaporean households, while the bottom 20% of households contributed only 4% of all GST paid. The government argued that as the GST was a core part of a fiscal system that provides transfers to the lower income, reducing the GST rate would be costly and inequitable, and leave the government with less resources to help the lower income.

Impact on cost of living

Pritam Singh from the Worker's Party raised concern and responded to Budget 2025 in Parliament on 26 February 2025, he questioned the necessity of the GST increase from 7% to 9% when Singapore ended the term with a projected $14.3 billion fiscal surplus. Singh argued that poor fiscal projections had led to an unnecessary burden on Singaporeans and warned that "The decision to go ahead with a GST hike when inflation was raging was poor. We have seen Assurance Packages and CDC vouchers dished out to cushion the GST blow, but when these handouts stop, the 9% GST will remain".

Prime Minister at the time, Lawrence Wong, claimed that the Goods and Services Tax (GST) hike did not fuel inflation. Wong's claim was challenged by several members of the public and insisting that the GST hike has impacted the cost of living. Singh cited the government's data to show that the GST hike had a measurable impact on inflation.