What to expect if tax rates are raised at Budget 2018

As people return from their Chinese New Year weekend, they could be looking at an announcement of raised taxes in next Monday's Budget 2018 speech, to be delivered by Finance Minister Heng Swee Keat.

In November last year, Prime Minister Lee Hsien Loong said that Singapore will be raising its taxes as government spending on investments and social services grows. In the wake of such comments, experts told The New Paper that tax hikes in various areas are a possibility.

Assistant Professor of Accounting at Nanyang Technological University (NTU) Kelvin Law said there is a possibility of a 1 to 2 per cent raise in Goods and Services Tax (GST).

But he added that to protect local businesses, this increase in GST rate should come with a reduction in the $400 GST threshold for goods being imported into Singapore.

"Otherwise, Singapore consumers are more likely to buy from overseas websites and local businesses would suffer more," Dr Law said.

Last week, Senior Minister of State for Law and Finance Indranee Rajah said the government is still studying the best way to implement an e-commerce tax.

While there is not a specific age or income group that might be targeted, Dr Law said that some groups might be more affected than others.

"For example, if the $400 GST threshold is further reduced, consumers who frequently shop on overseas websites are more likely to be impacted.

"As young people are more likely to embrace Internet shopping, a reduction in GST threshold is likely to have a bigger financial impact on them than other demographic groups," he said.

Mr Chia Seng Chye, tax services partner at Ernst & Young Solutions, said that an e-commerce tax could affect overseas-based suppliers of digital services.

"This is to ensure a level playing field between Singapore suppliers and overseas online suppliers. For instance, a domestic GST-registered supplier will be required to charge 7 per cent GST on the provision of digital services such as movie-on-demand services to Singapore consumers.

"On the other hand, an overseas online service provider, given that they are not GST-registered, can provide the same services to Singapore consumers free of Singapore GST," Mr Chia explained.

Another possibility is the introduction of a sugar tax. Dr Law explained that imposing sugar tax might cause soft drink companies to strategically reduce the amount of sugar in their products to just below the tax threshold. They can also replace sugar with artificial sweeteners.

Besides taxes on sugar and e-commerce, NTU economist Ng Yew-Kwang added that there might be higher taxes on petrol "to further discourage pollution and congestion."