A GST hike is almost inevitable, warns PwC

Government funds will be increasingly stretched.

It might not happen this year or in the next half-decade, but Singapore will eventually have no choice but raise its goods and services tax (GST) to meet increased social spending.

A report by PwC highlighted that Singapore needs increased tax revenue in the long run as income tax receipts fall in tandem with the ageing population.

"What is clear though, is that a need for increased tax revenue is inevitable in the long run in view of likely increases in social spending. This may eventually need to be funded by further broadening the tax baseor increasing tax rates," said PwC.

With Singapore's recent shift towards putting additional taxes on the wealthy and giving payouts to middle- and lower-income groups, PwC said that it is imperative to find a sustainable way of growing public coffers.

"Continuously taking from the proverbial barrel will eventually result in us reaching its bottom one day, no matter how much fiscal prudence and discipline we put into it. Sustainability should be the key refrain," said the report.

"Historically, hiking the GST rate to offset falling income tax receipts has been the favoured approach, in line with the policy objective of expanding the tax base. The increased tax burden on the lower income groups are offset by GST vouchers and other subsidies," PwC stressed.

"If the GST rate is to be increased, we would suggest that there be a minimum period of 12 months from the date of announcement of any such increase to allow for adjustment to be made by both businesses and consumers," the report noted.