IMPACT OF GST ON THE TOURISM INDUSTRY IN SINGAPORE

Abstract

This study investigates the likely impact of the Goods and Services Tax (GST) on the tourism industry in Singapore. As the GST will only be implemented in the Republic from April I, 1994, this paper uses a comparative study of Taiwan and New Zealand to infer from their experiences, any likely effects of the GST on our hospitality industry. To provide a stronger analysis, a demand system, commonly known as the linear expenditure system (LES), is estimated to assess the impact of GST on tourist expenditure. The result indicated that the revenue for the three fundamental sectors in the tourism industry will fall with the imposition of the GST. When the formal GST rate of 3% is applied, the hotel industry will suffer a drop of 3.29% in revenue over 1992, tourists expenditure on food and beverage will reduce by 2.33% from 1992 while shopping expenditures of tourists will decline by 2.55% from 1992. When a future projected rate of 10% is applied, all the three industries will face a decline in their revenues from 1992; the hotel sector will suffer a 10.96% reduction, the food and beverage receipts will decrease by 7.77% and the retail sector will see their revenue drop by 8.5%. It was also found from the cross elasticity of demand of the tourist products that the quantity demanded of shopping goods will still be affected with a tourist refund system. This is because there is a price effect of other tourist goods on the quantity demanded of shopping items. As an example, a 3% increase in the price of food and beverages will cause tourists to reduce their quantity demanded of shopping items by 0.075%; other things being equal. In contrast to this gross complementary relationship, a 3% increase in the price of accommodation will result in a 0.069% increase in the quantity demanded of shopping. The results obtained, together with the experiences of Taiwan and New Zealand, imply that the tourism industry in Singapore will be quite seriously affected. As such, the conclusion to this paper highlights some feasible solutions that can help mitigate this threat of GST. Suggestions for future research are also furnished.