Singaporeans are taking advantage of a smart shopping spree ahead of an upcoming sales tax hike. Starting from January 1, 2023, Singapore’s sales tax will increase from 7% to 8%, with a further rise to 9% planned for 2024. The purpose of this tax hike is to generate revenue to support Singapore’s aging population. While economists predict that the impact of the tax increase may be minimal, residents like Soif Noor are eager to make their purchases before the hike. Soif, a 28-year-old engineer, explained that any savings are valuable in the current inflationary environment. By buying furniture and appliances for his new home now, Soif estimates that he has saved S$250 ($185).
Soif also mentioned that his male colleagues are rushing to buy engagement rings, influenced by their girlfriends’ anticipation of higher prices in the following year.
In comparison to other countries, Singapore’s new sales tax rate of 8% will be slightly higher than Thailand’s 7% but lower than Indonesia’s 11%. It is also significantly lower than the roughly 20% rate in many European countries and Japan’s 10%.
Despite some countries implementing consumption tax breaks to alleviate the rising cost of living, Singapore has chosen to move forward with the tax increase. This decision has prompted retailers to capitalize on residents’ “smart shopping” mode. From department stores to furniture shops, promotions encouraging customers to “Beat the goods and services tax hike!” have become prevalent.
While the retail sector has experienced a positive bump in big-ticket consumer purchases, economists expect the overall impact on the economy to be muted. However, the growth of Singapore’s economy in the first quarter of 2023 is expected to be slow, as consumers may have less appetite for excessive spending until the uncertainties subside.
Retail statistics indicate a thriving industry. Sales in September 2022 increased by 11.2% compared to the same month the previous year, followed by a 10.4% year-on-year growth in October. Additionally, outstanding credit card balances in Singapore rose by 16% in the third quarter of 2021, according to the central bank.
Luxury jewellery stores like LeCaine Gems and SK Jewellery Group have witnessed significant sales growth as well. LeCaine Gems experienced a 15% increase in sales last month compared to the same period in 2021, while SK Jewellery Group reported a 25% increase in sales from September to November.
Although there is some concern and opposition among the population regarding the tax hike, supporters argue that Singapore has no other choice in order to meet the financial demands resulting from the expected growth in its aging population. The government has implemented measures to soften the blow, such as providing cash payouts of at least S$700 to nearly 3 million Singaporeans over five years as part of an S$8 billion “assurance package.” Additionally, the government has expressed the possibility of reviewing the second step of the tax increase if there is a major global downturn in the coming year.
Useful links:
– Singapore Budget 2022: Getting the Balance Right
– Tax increases don’t mean exclusive focus on revenues, says DPM Heng
