Unless a company intentionally try to cut cost, it always feels like the cost of doing business is increasing on an annual basis. Whether it’s higher manpower cost, higher rent or the cost of raw materials going up, keeping business costs the same always feels like an uphill task.
Higher CPF Contribution Ceiling From September 2023
Higher labour costs would be expected from September 2023 onwards as the CPF Contribution Ceiling is increasing in September 2023.
The CPF Contribution Ceiling caps the maximum amount that employers and employees have to contribute to their CPF accounts each month. For example, before 1 September 2023, a worker who earns $8,000 a month would only need to make employee contributions on the first $6,000 of monthly wages. Assuming the worker is below the age of 55, this means the worker contributes 20% of his monthly salary to the CPF account. Monthly take-home salary would be $4,800 (0.8 X $6,000) + $2,000 = $6,800.
From 1 September 2023 onwards, the worker will need to make an employee contribution of 20% up to the first $6,300 of monthly salary. Assuming the same $8,000 a month salary, this means take take-home salary will reduce by $60 to $5,040 (0.8 X $6,300) + $1,700 = $6,740.
From 1 January 2026 onwards, the CPF monthly contribution ceiling would increase to $8,000. Assuming a salary of $8,000, this means the full salary of $8,000 is now subject to CPF contribution. Thus the worker’s take-home salary will be $6,400 (0.8 X $8,000), or $400 less than before.
The other issue is that even with salaries remaining the same, employers will likewise need to contribute a higher amount each month as part of their employer’s contribution. For example, assuming a $8,000 monthly salary for a worker below the age of 55, the monthly employers’ CPF contribution is currently $1,020 (17% of $6,000).
From 1 September 2023 onwards, the employers’ CPF contribution will increase to $1,071 (17% of $6,300). From 1 January 2026, the employer’s CPF contribution for a worker earning $8,000 will be $1,360 (17% of $8,000), $340 more than the current contribution.
Thus, while employers will be incurring a higher cost for their local employees in the coming years due to higher CPF contributions required, the take-home salaries of their workers will be lower. Our editor explains more about how CPF Contribution Ceiling Increasing Would Affect Workers And Their Employers
Preparing For GST Rate Of 9% In 2024
On 1 January 2024, Singapore will increase its Goods and Services Tax (GST) rate from 8% to 9%, following a previous increase from 7% to 8% on 1 January 2023. The additional GST revenue will be directed towards supporting healthcare expenses and senior care. GST-registered businesses are urged to prepare for this transition, which would likely result in their customers seeing higher prices for goods and services.
It’s important for businesses to transparently communicate reasons for any price increases to consumers. Businesses planning price hikes should provide clear explanations and avoid attributing them solely to the GST increase. The Committee Against Profiteering will also be scrutinising unjustified price increases using the GST hike as an excuse.
Non-GST registered businesses must register when their taxable turnover exceeds $1 million by year-end or when they expect turnover to exceed $1 million within the next 12 months. Businesses considering voluntary GST registration should assess their scenarios and associated costs. IRAS shares more about What Businesses Must Know to Prepare for the Second GST Rate Change
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