- Positive on retail REITs despite 2-step GST hike
- Developers unlikely affected by property tax increase
- Drive to accelerate EV adoption benefits CD and STE
- Higher wage cost amid rise in EP, S-Pass salary thresholds
Tax system enhancement Singapore’s slowing labour force growth that constrain tax revenues coupled with increasing healthcare expenses raises the need for significant enhancement to the tax system that includes (1) GST hike to 9% (2) wealth taxes through adjustments to property tax, personal income tax for top income earners and luxury cars tax (3) higher carbon tax and (4) exploring a minimum effective tax rate for large MNCs.
GST hike deferred. The delay to Jan 2023 is a surprise. Retail sales will benefit from front loading of purchases this year while an anticipated inflow of tourism receipts should see more traction from 2H22. We remain positive on REITs with retail exposure such as FCT, CICT, LREIT and Suntec REIT. Consumer staples such as Sheng Siong and Kimly should remain resilient, benefiting from the enhancements to the Assurance Package and GST schemes.
Property tax increase The increase in property taxes for investment properties is widely expected and investors are likely to pass on the increased costs in the form of higher rental rates come 2023-2024 as the Singapore economy recovers. While the rise in property tax rates for owner-occupied homes is a negative surprise, we believe this will not impact demand from this segment as the increase is very manageable. That’s a relief for developers CityDev, Bukit Sembawang, UOL and Ho Bee.
Advancing Singapore’s Green transition The impact of the progressive carbon tax increase from current S$5/t to potentially S$50-80/t by 2030 for SCI and KIT should be immaterial as both can likely pass the cost to consumers given the ‘modest’ c.3-12% increase from current average household tariffs. ComfortDelgro could be set to snag more EV tenders going forward with Singapore’s drive to accelerate EV adoption. ST Eng has a ready suite of EV Charging solutions that it can also hope to deploy.
Pivoting to higher quality foreign labour Technology companies (e.g. Frencken, FuYu) that employ a significant portion of work permit workers could see increased labour costs due to the DRC reduction for work permits although this may be offset by lower foreign worker levy. The rise in minimum qualifying salaries for S-Pass leads to a modest increase in wage cost for shipyards, construction companies, hospitals, travel and hospitality related companies.