Singapore Budget 2018 Commentary
Covering the tax-related changes in Budget 2018
The Finance Minister (Minister), Mr Heng Swee Keat, presented the Budget 2018 Statement on 19 February 2018. In many respects, Budget 2018 picks up where the last two Budgets left off.
First, it addresses what the Minister meant in Budget 2017 when he stated that “we will have to raise revenues through
new taxes or raise taxes” so as to meet rising expenditures over the long term.
Budget 2018 addresses the burning questions of which tax should be raised, and whether new taxes would be introduced. In relation to the former, GST would be raised by 2% sometime in the period from 2021 to 2025, bringing Singapore’s GST rate to 9% when that happens. For the latter, GST on imported services will be introduced via a reverse charge mechanism and overseas vendor registration, both of which are to be introduced from 1 January 2020. The relatively long lead-times would be welcomed by consumers to prepare for the rate increase and businesses to assess
the impact of implementation and system changes.
Next, Budget 2018 builds on the trend of the Government favouring targeted assistance for businesses over broadbased schemes.
We first had a taste of this in Budget 2016 when it was announced that the broad-based PIC scheme would be allowed to lapse in YA 2018. Budget 2018 arguably introduces a further contraction of broad-based measures with the downward revision in benefits offered under the Start-Up Tax Exemption (SUTE) scheme and Partial Tax Exemption (PTE) scheme. On the other hand, the potential increase in effective tax rate brought about by the aforementioned changes may be mitigated if businesses engage in R&D activities; amongst others, qualifying expenditure on a variety of R&D activities would be eligible for increased deductions going forward in a bid to encourage pervasive innovation across all sectors of the economy.
Climate change remains high on Singapore’s agenda, and rightfully so, given that it is one of the most pressing challenges faced by the world. Since ratifying the Paris Climate Agreement in 2016, Singapore has introduced a slew of measures aimed at reducing its emissions intensity by 2030, from restructuring diesel taxes and implementing excise duties on petrol, diesel, and compressed natural gas, to halting the increase of new cars on the road.
Building on his previous announcement that Singapore will be introducing a carbon tax from 2019, the Minister announced this year that the tax initially shall be set at $5 per tonne of greenhouse gas emission for certain emitters,
with a review of the rates set in 2023. Perhaps with a view to limit other ‘emissions’, the Minister also announced a 10% increase in excise duty across all tobacco products with effect from Budget Day itself!
Viewed holistically, Budget 2018 is, to adapt from the colloquial phrase, “same same, but remarkable” – it is similar to previous Budgets in that the Government seeks to address multi-pronged challenges faced by the economy and
society at large, but remarkable in that taxpayers are given ample time to understand and adjust to changes that will only be implemented several years down the road.