Last year’s Budget was all about supporting Singaporeans through the challenges of the pandemic, the recession and an economy that was already tepid before the virus outbreak.
But all that hand-holding ends in 2021. After a year of being cushioned by government handouts, it is time to steel ourselves for higher GST rates and the imposition of GST on everything from non-digital services to imported goods and services.
Here are the changes to anticipate over the next couple of years:
1. GST on digital services (existing since 2020)
In case you missed it, GST on all digital services, i.e. the “Netflix tax”, has been in existence since the beginning of 2020.
GST is now payable on all services purchased online from overseas service providers, including online subscriptions that plenty of us can’t live without. Here are some familiar examples:
|Taxable digital services||Examples|
|Music streaming||Spotify, Apple Music|
|Gaming subscriptions||PlayStation Plus|
|Software programs||Microsoft Office|
|Data management services||Web hosting, cloud storage, etc.|
You may or may not have observed a sneaky 7 per cent rise in your monthly subscription fee. If you haven’t, the business might have absorbed the tax at the moment — but we expect most to pass these costs on to us.
2. GST on all imported goods (from 2023)
Have you been buying products online for less than what local shops are selling? Then get ready to cringe, as GST will be charged on all imported goods from Jan 1, 2023.
Previously, GST was levied on imported items costing more than $400, as some of you might have accidentally discovered when ordering items from overseas.
But from 2023, GST will be extended to all items delivered by air and post regardless of cost. (Goods shipped by land and sea are already taxed.)
You’ll thus have to prepare to pay 7 per cent or 9 per cent more on online shopping (depending on whether the GST rate has been raised yet… more about that later).
If there are certain basic necessities you are used to buying online, it would be best to do the math ahead of time so you can find a more cost-effective alternative if necessary before 2023.
Bigger overseas vendors such as Taobao or those already registered in Singapore like Shopee, Qoo10 and Lazada will probably collect GST on their end.
With smaller vendors, the picture is still somewhat hazy. It’s likely that the GST amounts will not be reflected upon checkout and you’ll have to pay the GST when your item is delivered.
3. GST on imported non-digital services (from 2023)
In order to cover all bases and ensure that Singaporeans are paying GST on everything purchased online, the government will start collecting GST on “non-digital” services in 2023.
Non-digital services refers to things like classes and consultations, and are distinguished from digital services like streaming and downloads.
Any sort of online course such as through schools or service providers like Udemy or Coursera could now attract GST. The same goes for your online therapist, online language teacher, online fitness classes or telemedicine. So long as the service provider is not based in Singapore, GST will be payable.
Due to the pandemic, more people have taken to online learning as a cheaper alternative to in-person classes. It might be time to start re-assessing the cost and making comparisons with live classes and services before 2023.
4. GST hike from 7 per cent to 9 per cent (anytime from 2022 to 2025)
The government has been discussing this for a few years now, and in 2018 they announced that 2021 was supposed to be the year GST got raised from 7 per cent to 9 per cent.
It has since been announced that the dreaded GST hike will take place sometime in 2022 to 2025. And the government has warned that it will happen sooner rather than later.
So, 2021 should be the year we reassess our budgets to make sure we’ve got room for the increase.
Are these GST hikes fair?
The Budget 2021 GST announcements are obviously not going to please many Singaporeans,. The government has tried to soften the blow by spinning some of the the GST updates as a way to level the playing field for local retailers.
However, this protectionist talk distracts us from another issue — how GST hikes might impact the poor in Singapore disproportionately.
To be fair, all governments need to raise tax revenue through some means or other. And some might say that the rich spend more, so they pay more GST.
But in practice, lower income groups tend to spend a larger proportion of their money on goods and services. Someone living hand to mouth and spending 99per cent of their salary on necessities will be paying 7 per cent to 9 per cent GST on all of that.
The rich, on the other hand, are likely to be saving or investing a larger proportion of their income rather than spending it on goods and services that attract GST.
So, those in the lower income brackets or those who are cash-strapped (eg. the squeezed middle class who might not be saving or investing much) are the ones who are going to have to tighten their belts the most.
Is the GST Voucher scheme enough?
The government’s permanent GST Voucher Scheme is its attempt to address the above flaw. Each year, lower-income Singaporeans get a few hundred bucks in cash to offset the rise in cost of goods and services.
For 2021, the GST vouchers for 2021 range from $350 to $500 and are distributed according to annual value of your home.
But, are the GST vouchers enough to address the imbalance?
At a GST rate of 7 per cent, $500 is enough to offset GST on $7,143 of expenses, while $350 offsets about $5,000 worth. Remember that it’s for an entire year of expenses. So you’ll need to pay out of pocket any extra GST above those threshold in your annual expenses.
And that’s not even factoring in price increases due to reasons other than GST (such as rent, manpower, or cost of supplies).
Given the rising cost of living — with or without GST hikes — it’s probable that many who are struggling financially are going to have to steel themselves for even tougher times ahead from 2023 onwards.
This article was first published in MoneySmart.