In Focus
RETAIL | Staff Reporter, Singapore
view(s)

Speculated GST hike could boost e-commerce tax

This could also mean a slowdown in business as consumers had a history of buying a lot before tax hikes.

RHB Research said an increase of the Goods and Services Tax (GST) could mean higher tax for e-commerce businesses and slower growth for consumer discretionary firms.

A possible GST hike was the talk of the town last week after Prime Minister Lee Hsien Loong said Singapore will be raising taxes to support growing government spending.

Previously, the GST was raised by 2 ppts to 7% on 1 July 2007. Similar to 1994, consumers shopped ahead of time. June's retail sales index shot up 15.3% YoY, followed by a decline of 2% YoY in July. Spending behaviour soon normalised in August. For the 12 months following the GST hike, retail sales were up by 3.6% YoY.

Based on historical records, consumer discretionary, comprised of furniture & household equipment, recreational goods, watches & jewellery, apparel & footwear, and food retailers typically saw a slowdown in growth or declining sales in the 12 months following a GST hike.

Meanwhile, consumer staples – supermarkets, mini-marts & convenience stores and department stores – were fairly resilient against GST hikes in the past.

RHB said, "These sub-sectors still managed to showed positive growth in three out of the four years, when the GST was increased. Medical goods & toiletries as well as computer & telecommunications equipment, however, managed to show positive sales growth despite historical hikes in GST."

However, a silver lining for companies with a brick-and-mortar presence is that online retailers are likely to be taxed, too.

"This should help to level the playing field between online and offline players," RHB analyst Juliana Cai said.

RHB forecasts a GST hike would not happen in the near term but may come after the current government’s term of office ends in 2021.

Taxes on e-commerce, in the meantime, may come earlier.

Cai added, "We believe this would have a negative impact on consumer spending, as Singapore is now a mature economy and its GDP is projected to only grow 2-3% annually beyond 2020."

Do you know more about this story? Contact us anonymously through this link.

Click here to learn about advertising, content sponsorship, events & rountables, custom media solutions, whitepaper writing, sales leads or eDM opportunities with us.

To get a media kit and information on advertising or sponsoring click here.