Deferring GST hike not feasible, despite CIT revenue surge: DPM Lawrence Wong

Deputy Prime Minister and Minister for Finance, Mr Lawrence Wong, has dismissed the idea of deferring the Goods & Services Tax (GST) increase despite a surge in Corporate Income Tax (CIT) revenue.

He asserted that such a move would only store up more problems for the future, leaving Singapore with fewer resources to address its growing fiscal needs.

The CIT revenue climbed to S$23.1 billion, marking a 26.8% surge from the preceding financial year.

Mr Wong’s response came after the Member of Parliament for Bishan Toa Payoh GRC, Mr Saktiandi Supaat, questioned the driving factors behind Singapore’s remarkable increase in CIT revenue for the financial year 2022/2023.

Mr Supaat also sought a comparison of the latest CIT revenue with the past decade and asked if the current trajectory could potentially offset the scheduled GST hike in 2024.

Mr Wong responded in writing on Wednesday, attributing the significant rise in CIT revenue to higher business profits amid the strong economic recovery experienced in 2021.

The surge mainly came from the financial and insurance sectors, services, wholesale and retail, as well as manufacturing.

Mr Wong further pointed out that growth in corporate income tax revenue has typically aligned with Gross Domestic Product (GDP) growth.

He clarified that any changes to the tax policies take into consideration not just year-to-year fluctuations but also medium-term trends in expenditures and revenues.

With the pressures of an ageing population and escalating healthcare costs, government expenditure is anticipated to increase from the current 18% of GDP to potentially over 20% by FY2030.

This projection does not account for additional spending from new policy initiatives and investments in resilience and economic competitiveness.

The Minister noted, “Deferring the GST increase will only store up more problems for the future, leaving us with fewer resources to take care of our growing fiscal needs.”

He emphasised the importance of continuously monitoring revenue and expenditure trends and adjusting fiscal strategies to meet the aspirations of both present and future Singaporeans.

Two-tier GST hike

The GST was raised by 1% from 7% to 8% on 1st January 2023 and is set to increase by another 1% to 9% in 2024.

This two-tiered hike was approved by the People’s Action Party (PAP) Members of Parliament in the Budget 2022, despite objections from opposition parties, the Workers’ Party (WP) and the Progress Singapore Party (PSP). They cited the potential impact on the population.

The PAP ministers defended the necessity of the GST hike to generate sufficient revenue for future expenses.

However, WP MPs and PSP NCMPs proposed alternative revenue sources and dipping further into reserve earnings – a move that would slow reserve growth without touching the principal sum.

The GST hike has ignited significant discontent among Singaporeans due to its cascading effect on inflation, causing dissatisfaction with the Singapore Government and the ruling party.

The PAP government, however, maintains that these measures are critical for Singapore’s fiscal future.