Singapore businesses not reacting to GST hike

Enterprises in the island-state are unlikely to change their IT procurement plans because of the impending sales tax hike, industry players say.
Written by Aaron Tan, Contributor

SINGAPORE--Companies in the island-state are not rushing to sweep IT products off the shelves, just to beat the impending GST (Goods and Services Tax) hike.

According to analyst house IDC, the GST rate, which will be increased from 5 percent to 7 percent from Jul. 1, will have little effect on most companies' IT purchasing decisions.

In an interview with ZDNet Asia, Reuben Tan, research manager at IDC's Asia Pacific Personal Systems Group, said purchase decisions often hinge on more important factors such as replacement cycles, and companies looking at replacing older systems will do so despite the higher price tag.

Most IT vendors, Tan added, are also likely to absorb the GST increase, so companies do not see the need to hasten purchasing decisions to avoid paying the additional sales tax.

When contacted by ZDNet Asia, hardware vendors Sun Microsystems, IBM and Hewlett-Packard declined to comment on whether there has been a spike in sales.

Deep Singhania, Singapore country manager and head at Indian IT services company TCS, told ZDNet Asia: "TCS has not noticed any upsurge in the business from Singapore customers because of GST increase, as we operate in a B2B (business-to-business) environment.

"Our customers offset the GST they pay to us from the GST they charge to their customers. Secondly, TCS provides IT services so customers would not see any tangible benefits on forward purchase decisions for services," he added.

At Singapore systems integrator S & I Systems, CEO Mark Lee, said: "Most of our clients are large corporate clients who have quite definite plans on their IT acquisitions, and their plans will not change much due to the GST increase."

Lee added: "On our company's own purchase plans, our timing is driven mainly by customer orders, and we did not make any significant or large purchase ahead of time to save on GST."

IDC's Tan, however, noted that in the price-sensitive SMB (small and midsize businesses) market, some companies might increase their spending before the sales tax increase kicks in.

Derrick Lee, a manager at a local electronics distributor with 50 employees, told ZDNet Asia that his company plans to buy 10 new PCs before Jul. 1. "Although the GST increment is only 2 percent, the additional taxes can add up to quite a bit when we buy many PCs at one go," he said.

Although consumers, like SMBs, are likely to buy IT products before the GST hike comes into effect, consumer IT vendors are likely to absorb the tax increase initially, Tan noted.

He added that when vendors do pass the hike onto customers eventually, they are likely to offer promotions and freebies to encourage spending. "This was what the vendors did when the GST was raised from 3 percent to 5 percent in 2003," he said.

This week, Creative Technology announced that it will not increase the current retail prices of its personal digital entertainment products sold in Singapore. The company said this will provide consumers with an additional cushion to lessen the impact of the GST hike.

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