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IF the Goods and Services Tax (GST) is raised in the upcoming Budget, the increase should be phased in gradually to lessen the impact on households, said professional services firm Deloitte.
In a report outlining its recommendations for Budget 2018, Deloitte also suggested that basic necessities be exempt from GST.
The report follows comments by Prime Minister Lee Hsien Loong that Singapore will be raising its taxes as government spending grows. This has sparked speculation among economists and tax specialists about the format and timing of the tax increase.
Most analysts expect a GST hike - which could come as soon as Budget 2018 - especially as Singapore's rates are relatively low compared with its regional peers.
If the GST is hiked by two percentage points, the increase should be done one percentage point at a time, said Deloitte's report, which was released on Thursday. "This would hopefully lessen the financial impact on the lower income group in Singapore."
Deloitte also called on the government to consider exempting basic necessities from GST. These include children's clothing, basic foodstuffs such as rice and vegetables, and certain prescription medicines for the elderly.
"This, together with the usual GST vouchers, would help to ease the financial impact on the lower income group. Zero-rating such items should not have an impact on the suppliers from a GST perspective as they should still be allowed to fully recover any input tax incurred in making such taxable supplies," the report noted.
As an alternative to increasing GST, Deloitte said, the government could consider reducing the GST registration threshold for companies.
"It is noted that many countries in Asia-Pacific have a low GST registration threshold so that most businesses are registered for and account for GST on their local sales."
Singapore's threshold "is the highest in the world", said Deloitte.
"Even if the threshold was reduced to S$500,000 from the current S$1 million, the threshold will still be comparatively high and therefore would still exclude many small and medium-sized enterprises (SMEs), which make up a considerable number of the active businesses in Singapore."
Deloitte's recommendations also include suggestions for making Singapore's tax system simpler and more friendly for SMEs, which tend to face disproportionately higher tax compliance costs compared with larger firms.
Ideas include using technology to automate the tax compliance process for SMEs, given that much of the information needed would already have been filed with the Accounting and Corporate Regulatory Authority (Acra) as part of a company's financial statements.
For more stories on Budget 2018, click here.