Singapore braces for sales tax hike on demographic crunch fears

Singapore households are bracing for a sales tax hike, in effect in 2024, as the government shores up coffers ahead of an anticipated surge in social spending.

The Asian nation, touted to be a city-state for its size, is rapidly ageing, hence the prediction for social spending in the years ahead.

The goods and services tax levied on all goods will be increased by one percentage point to 9 per cent on the first day of the new year, in the second phase of a two-stage rate hike.

This year, the sales tax was raised to 8 per cent from 7 per cent, which remained unchanged for 15 years on stretch.

The hikes come on top of already rising living costs, prompting opposition lawmakers to call for a delay in the rise. Core inflation in Singapore has moderated to 3.2 per cent

in November from a peak of 5.5 per cent in January and February, but remains persistent with the central bank expecting it to average 2.5–3.5 per cent next year.

The tax increment was necessary to bolster state finances, the government said, as it prepares for a surge in Singapore's ageing population and rising healthcare costs. A quarter of the population will be 65 and older by 2030, as per predictions.

In August, Deputy Prime Minister Lawrence Wong wrote in a parliamentary response that "deferring the GST increase will only store up more problems for the future, leaving us with less resources to take care of our growing fiscal needs".

The government has handed out fiscal relief to households in an "assurance package" worth more than S$10 billion ($7.55 billion), including S$200 to S$800 paid out to all adult Singaporeans this month.

Some retailers have pledged not to pass on the tax hikes for now. Home furnishing brand IKEA said it will absorb the 1 per cent hike but did not say when it would end the initiative, while supermarket chain FairPrice Group will absorb the hike on 500 essential items like rice and vegetables.

(With Reuters Inputs)