Some business leaders in favour of raising GST in 2 steps to soften impact on households, businesses

BUSINESS leaders here said they are more in favour of a 2-step phased approach to introducing the upcoming Goods and Services Tax (GST) hike, as doing so would help to soften the impact it will have on households and businesses.

The government had previously announced that it would be moving to increase GST by 2 percentage points to 9 per cent at some point between 2022 and 2025, with the expectation to implement it sooner rather than later.

Prime Minister Lee Hsien Loong said during his annual New Year Message that with Singapore's economy emerging from the Covid-19 pandemic, the government has to start moving on the planned hike.

The issue will therefore be addressed during the upcoming Budget, which he said will lay the basis for "sound and sustainable government finances" for the next stage of Singapore's development.

Business leaders here who called for a staggered GST hike said a calibrated approach is more prudent given the ongoing concerns over global inflation and the uncertain pace of economic recovery due to the Omicron variant.

Such a move would also be more accepting to consumers, as it would lessen their financial burdens during this time, said John Ng, chief executive of electricity company YTL PowerSeraya.

Max Loh, Ernst & Young (EY) managing partner for Singapore and Brunei, said a 2-step approach would offer the government some flexibility in monitoring and calibrating the impact of the rate hike.

The government could conduct an impact analysis after implementing the first phase, and then adjust or delay the second stage depending on the findings, said Helen Ng, chief executive of general storage company Lock+Store.

Toby Koh, group managing director of security company Ademco, said the government could consider introducing a luxury tax to mitigate the effects on the national coffers.

Still, some business leaders believe it is better to rip the band-aid quickly and raise the GST to 9 per cent at one go.

They said that doing so will minimise the hassle and administrative costs of back-to-back transitional measures.

EY's Loh also pointed out that a decisive 1-step approach will reduce uncertainty and anxiety and the burden on businesses in managing the rate change twice.

That being said, acknowledging that the hike will have an impact on low income households, business leaders were in favour of pushing it back until at least 2023 to give the economy more time to recover and allow businesses to prepare for the move.

Yean Cheong, executive director of SGTech, said: "Some appeal for a 1 or 2-year delay until our economic recovery is robust and uniform across sectors.

"A GST increase now may reduce consumer demand and business confidence, shaking the weak foundations of economic recovery."

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