You are here


Singapore Budget 2018: Taxes, transformation and tooling up for the future

With stronger economy, Finance Minister expected to focus on tax revenue, economic transformation and social measures

The challenge of keeping Singapore in good fiscal health will be a key focus of this year's Budget.


THE challenge of keeping Singapore in good fiscal health will be a key focus of this year's Budget.

With infrastructure investment and social spending set to continue climbing, market watchers widely expect Finance Minister Heng Swee Keat to raise taxes in Budget 2018.

While recent Budgets contained measures to help companies cope with the slowing economy, these concerns have become less pressing on the back of strengthening growth this year.

Instead, Mr Heng is expected to devote more attention to familiar issues like economic transformation, skills upgrading, innovation and digital disruption, healthcare, education, as well as the environment.

The Finance Minister will deliver his Budget speech in Parliament on Feb 19.

Market watchers widely expect Mr Heng to pave the way for a hike in the Goods and Services Tax (GST).

Economists and tax specialists have been speculating about the format and timing of a potential tax increase, ever since Prime Minister Lee Hsien Loong said recently that Singapore will be raising its taxes as government spending grows.

Singapore's Budget spending has been higher than operating revenues since the 2015 financial year.

The Goods and Services Tax (GST) has emerged as one of the most likely candidates for an increase, especially since Singapore's rates are relatively low compared with its regional peers.

The GST contributed S$10.85 billion to government coffers in the 2016 financial year - the second-largest source of tax revenue after corporate income tax.

The timetable for a GST hike could be announced in Budget 2018, said CIMB Private Bank economist Song Seng Wun. "The increase might not come this year but the following year, to allow time for preparing and explaining the rationale for the hike," he noted.

A number of economists and tax experts have recommended a staggered increase in the GST, should the hike take place.

DBS senior economist Irvin Seah expects Mr Heng to announce a 2 percentage point hike in the GST, phased in over two years. "This will lessen the impact on households and if combined with an effective offset package, will minimise pain to certain segments of the society," he noted.

A 1 percentage point increase would raise tax revenue by S$1.6 billion to S$1.8 billion, Mr Seah estimates.

The government also has other options for raising revenue, including increasing property taxes as well as raising excise duties on tobacco, liquor, or even the import of vehicles, he added.

In addition, there has been talk of introducing an e-commerce tax, which would help level the playing field in retail for online and bricks-and-mortar sellers. Mr Heng had already said in Budget 2017 that the government was studying ways to tax e-commerce.

Beyond taxes, analysts said Singapore's economic transformation - a top priority in previous Budgets - will remain a key issue in Budget 2018.

In particular, the popular Productivity and Innovation Credit (PIC) scheme is expiring and companies will be watching the Budget for similar incentives. The PIC scheme was introduced to encourage small and medium-sized enterprises to spur investment in productivity and innovation by offering them cash and tax deductions for costs like worker training, automation and research.

"With the expiry of the PIC... there is concern that the innovative mindset and momentum of the research and development (R&D) ecosystem that Singapore has painstakingly built up may be disrupted," said Lee Tiong Heng, tax partner and leader of global investment and innovation incentives at Deloitte Singapore and Southeast Asia.

Singapore's neighbours, particularly Malaysia, Thailand and the Philippines, have started ramping up R&D tax incentives, he noted.

"Our perennial competitor Hong Kong has recently decided to take a leaf out of Singapore's playbook by introducing R&D initiatives similar to the PIC scheme.

"Singapore must continue to remain attractive not only to companies who are currently active in high-value creation, R&D and intellectual property-related activities, but also to those that are seeking opportunities to embark on their R&D journey. To keep pace with regional economies, Singapore must continue to enhance its existing R&D tax measures," Mr Lee said.

OCBC economist Selena Ling said Budget 2018 is likely to focus on "familiar issues of economic restructuring, education, healthcare, environment and infrastructure", as well as helping workers adapt amid disruption and change.

Besides anticipating fresh announcements for the year ahead, economists are also looking to a bumper Budget surplus on the back of the uptick in economic growth, which would have boosted tax collection.

In addition, the resurgent property market likely lifted stamp duty receipts, said CIMB's Mr Song.

A surplus - where the government spends less than it takes in - could provide leeway for Budget 2018 to include "Chinese New Year ang pows", he added.

Still, Mr Song noted that the focus this year will remain very much on the long-term.

"Singapore Budgets are always very pragmatic," he said.

"How long is the long term? Really very long - we're talking about future generations."

READ MORE: Industry transformation maps 'disconnected from needs of businesses'

For more stories on Budget 2018, click here.   


For more stories, visit

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to