First sales tax hike in 15 years has sent Singapreans on shopping spree as the increase is due to kick in on January 1, 2023. Though the increase is from 7 per cent to 8 per cent, the 1 per cent hike is going to apply to everything from groceries to diamond rings. Barring a projected sharp global economic downturn next year, it will then rise to 9% in 2024 as the city state of 5.6 million people raises revenue to support its ageing population.
Economists feel that the impact of one percentage point tax hike may be muted as consumer spending surge is likely to be followed by a lull after the tax rise kicks in.
For consumers right now, the impending increase is important as they seek to save money.
“A 1% increment may be small, but any savings help in this inflationary environment,” 28-year-old Soif Noor told Reuters. By buying everything now before the hike, Soif said he’s saving S$250 ($185) on his purchases, now in storage at retailers’ facilities.
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Noor further said that some of his male colleagues are rushing to buy engagement rings, being urged by girlfriends to “propose now – if not it will be more expensive next year”.
When the tax hike kicks in, the sales tax in Singapore will be slightly higher than Thailand’s 7% but lower than Indonesia’s 11%, less than half the roughly 20% rate imposed in many countries in Europe, and below Japan’s 10%.
Singapore’s move to forge ahead with the tax increase comes even as some countries, like Thailand and Italy, approve consumption tax breaks to help citizens cope with the rising cost of living crisis.
OCBC economist Selena Ling said the current “positive bump” in big-ticket consumer purchases was good for the retail sector, but the impact on the overall economy is likely to be muted. The sale or lease of residential property is exempt from the tax, while the impact on car sales remains uncertain, with prices at record highs this year.
Ling expects economic growth in the first quarter of next year to be slow with “less consumer appetite for excessive spending in the near term until the uncertainties abate”.
(With inputs from agencies)
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