Singapore and Malaysia, two of Southeast Asia’s most developed economies, are set to increase their consumption tax rates in the next two years, amid rising inflation and fiscal pressures. The move has sparked concerns among consumers and businesses, who are already facing higher costs of living and operating.
Singapore will raise its goods and services tax (GST), a consumption tax imposed on nearly all goods and services in the country, from 7% to 8% in January 2023, and to 9% in January 2024. The GST hike was first announced in 2020, as part of the government’s plan to ensure long-term fiscal sustainability and meet rising spending needs, especially in healthcare and social services.
The GST hike will also apply to imported low-value goods valued up to S$400, which are currently exempted from the tax. This means that all goods and services imported into Singapore, including those purchased online, will be subject to the GST.
The government has said that the GST hike is necessary and inevitable, given the limited room to tweak corporate and personal income tax rates, which are the country’s top two sources of tax revenues. It has also assured that it will provide sufficient support for households, especially the lower-income and vulnerable groups, to cope with the GST increase.
The support measures include the S$8 billion Assurance Package, which comprises cash payouts, grants and utilities rebates, as well as GST vouchers, MediSave top-ups, additional tranches of Community Development Council (CDC) vouchers and education-related subsidies for children. The details of the latest S$1.4 billion addition to the Assurance Package will be announced in the upcoming Budget 2023.
Malaysia to reintroduce SST from 6% to 10% by 2023
Malaysia, on the other hand, will reintroduce its sales and services tax (SST), a consumption tax levied on the sale and provision of goods and services in the country, from 6% to 10% by 2023. The SST was abolished in 2018, and replaced by the goods and services tax (GST), which was set at 0% in June 2018 and later scrapped in September 2018.
The government has said that the reintroduction of the SST is part of its fiscal consolidation efforts, as it aims to reduce its budget deficit and public debt, which have ballooned due to the COVID-19 pandemic and the stimulus measures to support the economy. It has also said that the SST will be simpler and more efficient than the GST, and will have less impact on the people’s purchasing power.
The government has also promised to provide relief measures for the people and businesses, such as exemptions, rebates and discounts, to ease the burden of the SST. It has also said that it will monitor the prices of goods and services, and take action against any profiteering or price manipulation by unscrupulous traders.
Consumers and businesses brace for higher costs
The consumption tax hikes in both countries have raised concerns among consumers and businesses, who are already facing higher costs of living and operating due to inflation and supply chain disruptions. Inflation rate in Singapore hit a 14-year high of 7.5% in August, while inflation rate in Malaysia reached a 13-year high of 7.3% in October.
Consumers are worried that the consumption tax hikes will further erode their purchasing power and savings, and affect their spending patterns and lifestyle choices. Some have called for the government to delay or reconsider the tax hikes, given the uncertain economic outlook and the ongoing recovery from the pandemic.
Businesses are also concerned that the consumption tax hikes will increase their production and operational costs, and affect their competitiveness and profitability. Some have said that they may have to pass on the higher costs to consumers, or absorb them by cutting costs or margins. Others have urged the government to provide more assistance and incentives for businesses, especially the small and medium enterprises (SMEs), to cope with the tax hikes.
Experts weigh in on the pros and cons of consumption tax hikes
Economists and analysts have different views on the pros and cons of the consumption tax hikes in both countries. Some have said that the tax hikes are timely and necessary, as they will help to boost the government’s revenues and fiscal position, and support the long-term development and social needs of the countries. They have also said that the tax hikes will have a limited and temporary impact on inflation and growth, as the government will provide adequate support and relief measures for the people and businesses.
Others have said that the tax hikes are untimely and unnecessary, as they will add to the inflationary pressures and dampen the consumer and business confidence and sentiment, which are crucial for the economic recovery and growth. They have also said that the tax hikes will have a disproportionate and regressive impact on the lower-income and vulnerable groups, who tend to spend a larger share of their income on consumption, and may not benefit fully from the government’s support and relief measures.