Goods and Services Tax (Singapore)

Goods and Services Tax (Abbreviation: GST; Chinese: 消费税) in Singapore is a broad-based value added tax levied on import of goods, as well as nearly all supplies of goods and services. The only exemptions are for the sales and leases of residential properties and most financial services. Export of goods and international services are zero-rated.

Before 1986, Singapore's corporate income tax rate and top marginal personal income tax rate both stood at 40%. Such high rates were deemed to be uncompetitive. On the recommendation of the 1986 Economic Committee, Singapore's government decided that it needed to shift from direct to indirect taxes, to maintain its international competitiveness in attracting investments, and to sustain its economic growth to create well-paying jobs for Singaporeans.

The GST was part of a larger tax restructuring exercise to enable Singapore to shift its reliance from direct taxes to indirect taxes. The government argued that tax reform was necessary to maintain Singapore's competitiveness, to sustain long-term growth and job creation. The government also argued that with an ageing population, Singapore's income tax base was expected to decline. With a broad-based GST, the taxation burden would be more evenly spread among the population.

A value-added tax, like the GST, also has several features that make it attractive. A tax on consumption, not income, the tax system inherently encourages savings and investments instead of consumption. The tax also has a self-policing mechanism that discourages evasion, unlike a retail sales tax system or an income tax system, which would be relatively easier to evade.

GST was implemented at a single rate of 3% on 1 April 1994, with an assurance that it would not be raised for at least five years. To cushion the impact of GST on Singaporean households, an offset package was also introduced. Simultaneously, corporate tax rate was cut by 3% to 27%, and the top marginal personal income tax rate was cut by 3% to 30%. The initial GST rate of 3% was among the lowest in the world, as the focus was not to generate substantial revenue, but to allow people to get adjusted to the tax.

In 2002, the Economic Review Committee reviewed Singapore's tax policy, and recommended that further tax reform was necessary to bring in new investments. The committee noted that other countries were aggressively cutting their direct tax rates to attract internationally mobile capital and labour, and recommended that the government rely more on GST for its tax revenues, while again cushioning the impact on Singaporean households through an offset package.

The government accepted the committee's recommendations. The GST rate was increased from 3% to 4% in 2003, and to 5% in 2004. Each increase was accompanied by an offset package that was designed to make the average Singaporean household overall better off, even after accounting for the additional costs imposed by the increase in GST rates. Direct tax rates were also reduced correspondingly.

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