GST unlikely to have exemptions: Experts

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S'pore is not expected to introduce tax exemptions on essential items

While the Goods and Services Tax (GST) is set to increase, it is unlikely that Singapore will introduce exemptions for essential items, as some other countries have done.

This was the common sentiment among experts The New Paper spoke to yesterday, after Finance Minister Heng Swee Keat announced in his Budget speech on Monday that the Government will increase GST from 7 per cent to 9 per cent between 2021 and 2025.

Mr Yeo Kai Eng, partner for GST Services at Ernst & Young (EY), said: "The way we administer GST should be a simple system that applies to all things and introducing a system of exemptions for different categories of goods would make it more complicated."

Many countries have GST or value-added tax (VAT) exemptions for essential items like food, water and medicine, as well as essential services like education, healthcare and sewage.

Indonesia, which has a VAT rate of 10 per cent, has exemptions for basic commodities like rice, meat and vegetables.

In South Korea, which also has a VAT rate of 10 per cent, social welfare services and basic necessities are exempt from taxation.

Other countries impose a tiered tax system, where essentials are taxed at a reduced rate compared with other goods and services.

The Vietnam VAT rate is 10 per cent, but it is reduced to 5 per cent for water, medicine, agricultural products and residential housing. Raw agricultural produce, public transport, livestock and educational services are exempt from taxation.

In Japan, tax rates will rise from 8 per cent to 10 per cent from Oct 1 next year.

But the lower rate of 8 per cent will still be applied to food, drinks and newspapers.

Even though Singapore taxes essential items, CIMB Private Bank economist Song Seng Wun said the Government has implemented measures to help those in need.


These include the GST Vouchers that are given out every year, which Mr Heng said would be topped up by $2 billion this year.

Other measures are the varying tax rebates, Medisave and Edusave.

"This form of targeted help is supposed to offset the GST that you pay in your daily life, with more help available to those who need it more," said Mr Song.

Ms Chew Boon Choo, partner for indirect tax - GST at EY, said: "To simplify the administration and collection of GST, the Singapore Government adopts a broad-based approach whereby nearly all supplies of goods and services are subject to GST.

"Part of the GST collected is channelled to help lower-income households and seniors through offsetting measures such as permanent GST Vouchers, subsidised education and health care."

When the GST was increased from 5 per cent to 7 per cent in 2007, then-Second Finance Minister Tharman Shanmugaratnam said that a GST system with exemptions would be arbitrary and administratively costly to operate, as it could give rise to a multi-tiered system and it would be hard to draw the line as to what constitutes essential items.

"This is why we have decided that the most effective way of raising money revenues to help the poor is to administer a simple, across-the-board GST rate on all products in the market, and to, instead, compensate the lower-income group more through offsets," said Mr Tharman then.

In his speech on Monday, Mr Heng gave an example of how the Government will continue to provide targeted help.

Rebates for the Service and Conservancy Charges (S&CC) will be extended for another year, with eligible households living in one- and two-room flats receiving 3.5 months of rebate, while those in three- and four-room flats receiving 2.5 months.

The rebate will be two months for households in five-room flats, and 1.5 months for those living in executive and multi-generational flats.

Mr Song believes the Singapore system works because of the unique way the Government provides aid - by looking at the kind of homes people live in.

Mr Song said: "Generally, the wealthy stay in bigger homes or in landed property, so it makes sense that we give out help according to that.

"Every one consumes essential items and if help is given out by the kind of product, it would also subsidise the wealthy, who consume such products too."