Singaporeans are bracing for an impending increase in the country's sales tax rate, which is set to take effect at the beginning of the new year. The move is being made by the government in an effort to strengthen the nation's financial stability in the face of anticipated increases in social spending, especially in light of the country's rapid population growth.
The increase includes the rates of the Goods and Services Tax, which applies to a range of items from basic necessities to luxury goods such as diamond jewelry. The tax rate will be increased by one percentage point, reaching 9% next Monday. The move is part of the second phase of the announced tax hike program, which already raised the sales tax from 7% to 8% this year after remaining unchanged for 15 years.
The increase comes amid a steadily rising cost of living, prompting opposition members of parliament to call for a delay in the implementation of the policy. Although Singapore's core inflation rate fell to 3.2% in November from a peak of 5.5% in January and February, it remains a significant concern. This is due to the central bank's projections of an average inflation rate of 2.5-3.5% in 2024.
The government has maintained that the tax hike is an inevitable step to strengthen the nation's finances in the face of Singapore's growing elderly population and escalating healthcare costs. It is estimated that about a quarter of Singapore's total population will be aged 65 and above by 2030.
In August, Deputy Prime Minister Lawrence Wong expressed his view in a parliamentary response that delaying the GST increase will only create more complicated problems in the future, given the diminishing resources to meet ever-increasing fiscal demands.
The government has provided financial support to households through a S$10 billion ($7.55 billion) "assurance package," including cash payments of between S$200 and S$800 to all adult Singaporeans this month.
Several retailers have pledged to temporarily cushion the impact of the tax hike. Furniture retailer IKEA, for example, announced its intention to absorb a 1% increase, although the duration of this policy has not yet been determined. On the other hand, the FairPrice Group supermarket network plans to absorb the tax increase on 500 essential products such as rice and vegetables.