Last December, the government brought about a possible increase in our Goods and Services Tax(gst). Now that the government has confirmed, it will announce the Budget on 15 February. The current debate is that should they jump straight to the 7% gst, or should it increase to 6% this year and 7% next year.

Our Prime Minister Lee Hsien Loong mentioned in yesterday's Straits Times that we should 'take (our) medicine sooner', suggesting a one time hike of 7%. The government says that this hike will be better for us as we do not have to face the issue of gst increment for a while.

I think that this will slow down volumes of trade in the stock market.

My reasons:

First. Commisions from trade done from the internet and phone will increase. All brokers currently earn $1.25 from S$25 of booking fee will see a $0.50 increase to a total of S$26.75. The phone however, will see an increase from $42, includes 5% gst, to $42.80.

Second. Clearing fees to clear our transactions will increase as well. Maximum clearing fees of $200 will increase from S$210 with 5% gst to S$214.

Having said that, I'm not suggesting that there will be no trading, but there will be lesser volumes and people trading in the long run. Buying or selling shares will become a bit more costly and would be a bit harder for people to own shares. We would even see lesser people being actively involved in the stock market due to the extra costs incurred.

Now the question is, are you going to trade less?


Nurwidya Abdul