Imran Ahmed / http://imranwrites.blogspot.com/
It is time for the government to consider lowering the GST rate in light of how it hurts the poor more than the rich.
RECENT reports in the international media suggest that the US tax collector has received an unusually high number of queries from wealthy people about how to ‘come clean’ about their undeclared overseas wealth.
Breaking the law can rarely be condoned and this is not one of those ‘Gandhian civil disobedience’ moments. But the pandemic of Americans hiding money from their government does raise questions about the structural benefits of various tax regimes.
Any crisis always presents opportunities for constructive change.
For Singapore, it might be the correct time to revisit the Goods And Services Tax (GST) rate of 7% and consider reducing it to, say, 5%. The natural economic distortion created by the GST, which is an indirect tax, is decreased and domestic consumption will be given a fillip.
It is intuitive to suggest that an efficient tax regime will not only generate high taxes but also encourage capital to be properly utilised.
Singapore’s income tax system, which is a form of direct taxation, is easy to understand and simple to implement. Importantly, there is no tax on an individual’s foreign earnings until the moneys are repatriated to Singapore.
Practically speaking, a friendly direct tax arrangement makes it easier for wealthy individuals like Jet Li or the financial guru Jim Rogers to relocate to Singapore. It means people do not have to pay taxes on their entire overseas income streams, only on the amount which they bring into and spend in Singapore.
Such stipulations encourage wealth to gravitate to Singapore. When you couple a low tax system with the other benefits of living in Singapore then it is no surprise people will be happy to live (and spend their money) in the city-state.
The inflow of wealthy and economically active individuals benefits all Singaporeans.
Poor most affected by GST
Indirect taxation, as represented by the 7% GST, is another matter. The GST scheme itself is an acceptable tax instrument but at 7%, Singapore’s GST rate is higher than necessary.
GST is a form of regressive taxation. Like all forms of indirect taxation, GST has a greater impact on the less well-off sections of society than on the more affluent.
For example, a five dollars GST paid monthly by a typical cable television subscriber is more valuable to a person with a monthly income of SGD 2,000 versus someone with a monthly income of SGD 15,000.
It is a tax on consumption and, at least in theory, encourages savings and discourages consumption. However, consumption at a basic level is inelastic and comprises of basic necessities. People of lower income level will be unfairly penalised because they have to spend on basic necessities, which is affected by the GST as well. There is only so much one can save by reducing consumption of rice and basic clothing.
Based on official figures, in 2005 approximately 40% of the labour force earned less than SGD 2,000 monthly. This large segment of the population will pay limited, if any, direct taxes but even a slight reduction in the GST will positively impact their consumption and savings dramatically.
Possible to cut GST
During the years 2003 – 2008, Singapore’s population has increased by 18% to 4.8 million (the increase in Singapore’s labour force will typically be much lower than the 18% population increase). In the same period, personal income tax revenue has risen by 53% from SGD 3.9 billion to SGD 5.9 billion. Takings under the corporate income tax head swelled by 43%.
Prima facie, the numbers indicate that current personal and corporate income tax rates are not acting as a drag on economic activity. After all, both personal and corporate income tax revenues have grown considerably faster than the rate of population growth.
This suggests that the reliance on GST revenue can be tempered as proceeds from corporate and personal taxes continue growing as the economy expands.
Since the introduction of GST in 1994, it has become a significant source of revenue for government coffers. In 2008, the GST will provide an estimated SGD 6 billion while personal income tax is expected to come in at SGD 5.9 billion. GST now delivers approximately 17% of total government revenue versus 12% in 2003.
GST is and will remain important to the government’s budgetary process. But Singapore has already accumulated reserves of over SGD 200 billion and generally manages a budget with an operating surplus. In this context, the focus for the taxation regime must be to increase economic efficiency in the employment of capital.
Future taxation revenues should be underpinned by sustainable advances in domestic economic activity.
Ordinary Singaporeans have worked extraordinarily hard to contribute to government coffers for the last 44 years. The current economic crisis might just provide the best opportunity for the Ministry of Finance to evaluate a permanent reduction in the GST rate.
Note: All revenue and population data has been obtained primarily from the Singapore budget websites and / or other official Singapore government sources available on the internet. Links can be provided if requested.
Imran blogs at http://imranwrites.blogspot.com.
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if the government wanted to help, it would have lowered hawker rental already. not to mention gst, housing, health, electricity etc.
instead all went up.
in this recession, some rents are still raised 100%.
tell me this does not affect cost of living or drive the hawkers to desperation.
and the pap mp implied that recession or not, rents will still up 11% at least every year.
if we don’t vote out the pap, we are doomed if u are a lower mortal.
if u are the rich or higher mortal, life is great in this playground/eden
Come back again to the bottomline, massive losses in investment, everything goes up. JTC factories’ rental also went up despite recession and appeals from SMEs and SOHOs.
GST will go north after election to 10%, it wont go down. Even minister is saying lower fares not going to help needy, they have many GOOD POLICIES in place. So do you expect GST to come down?
Get real.
GST should go up. more help can be dish out to the needy.
I think we need to prepare ourselves for increases, across the board. 30 billion of tax collected, but as the numbers revealed, a smaller group of taxpayers are shouldering 25 % of the sum collected. Means the average joe is paying less. The “contributing” part of the citizens needs relief from paying too much, so to balance it, the collection of taxes will have to be tweaked . Guess which part of us will be hit?
Oh yesh, first they will say that they need to help the needy more..then they will say increasing GST is the best…then people like LSS and our ST will sing praises about the foresight and how it will help the people…then they will stuff it down the people’s throat
but in the end, did it help the people as promise? or only a selected few
Cannot lower GST lah….otherwise how to continuing paying our mini-stars millions of dollars every year?? Otherwise how to make up for the billions of dollars lost by Tamasek??
I think the government should just go ahead and increase everything … just like Joshua has commented in another thread. Come on and tax us whever we go and whatever we do. The faster they tax us to death the better. This way we do not have to agonize too long. They will surely be booted out at the next GE.
It doesnt work… the whole idea of GST was to ‘help the Poor’. so in bad times, they have to raise GST to ‘help the Poor MORE’.. hahahahaha.. Sorry but I find it so difficult to think of them listening to any of us except through the ballot box.
For those who voted for them, I say, you deserve more ‘HELP’ otherwise you should really do yourselves a great favour by voting for Change ! Vote for people who stil have a passion for the country, a duty to you and a love for justice, equality in building a democratic society.
Essential goods and services should be exempted completely from GST. Electricity, petrol, diesel, public transport fare, and staple food items such as rice should be exempted. While 2% cut may not sound a lot, the fact that we actually spend a lot on these goods everyday means 2% do represent substantial savings.
When the GST was increased from 5% to 7% (a 40% jump), the budget went from a projected minus 0.6b to about plus 4.3b. They could have increased it more moderately, say, 5.5% or 6%, but the FM was too kiasi & reasoned if they have to grab, they might as well grab big-time. After all, those were “good” days. The only multi-billions “projects” visible since then are the IRs and TH’s investment portfolio. To decrease? You must be joking! These “projects” no need money, hah?
Based on official figures, in 2005 approximately 40% of the labour force earned less than SGD 2,000 monthly. This large segment of the population will pay limited, if any, direct taxes.
How can the Pay and Pay Government let the 40% get away without paying any income tax? Die, die must tax them. Hence GST! From 3% to 7% . So, every one, rich or poor, pays taxes. Like death, cannot escape.
Bragging rights. We have one of the lowest tax rate in Asia, except Hong Kong which “voted” down proposed GST. Why was Hong Kong population against GST, because it will be a drag on their economy, especially tourism and increase cost of living.
sometime kachengputeh shopkeepers liked us doin a $1,000 deal, we don’t even make $33 buck$!
the $1,000 deal with the additional $70 goes to the government coffer who did nothin! ZICH!. without a doubt, someone have to fork out the 7% gst..it won’t be the kachangputeh shopkeeper thats for sured which now also include the notorius NETs 1% extras! we the shopkeepers rather forgo the deals
so in the end the poor consumers/peasants have to fork out that extras $80 or whatsoever!
it not that the consumers want to spend a $1,000 goodies, not that they want to,
but they have to in order to buy a laptop/whatever for their neverendin costins kids who needs all this goodies….
~sigh~
I think you got it wrong. When the economy dives, less taxes are collected.
Therefore GST have to go up to make up the shortfall from those who are less
affected.
When profits drop ever so slightly, fares are raised to provide an adequate
return to shareholders.
Help the poor? No way. they could develope a crutch mentality, and some
may abuse it.
Get real, reducing GST is only gonna happen in your dreams.
Of course GST must go down, it’s like demand vs supply thingy. Except the govt is playing their own economics in this country.
wait long long for government to help….
Sorry Folks, the recession is going to end. Too late to ask the gov to lower down. Someone had mention it last year but the gov. refuse to listen. So all of you know what to do in the nwxt election. I can assure all of you, the GST will ahead north till it reach 10% eventually. Mark my words.
#9 Oxford Dude
“Electricity, petrol, diesel, public transport fare, and staple food items such as rice should be exempted.”
While I agree that there should be measures in place to ensure that the basic necessities for Singaporeans should remain affordable, I would just like to point out that petrol would not be considered a basic necessity. This is because we use it in cars, which are considered a luxury good already. So making petrol tax-free would benefit the people who are rich enough to own cars, and not effectively target those who need it most.
#11 mars
“We have one of the lowest tax rate in Asia”
Fact. Shouldn’t we then be counting our blessings already instead of whining about how high it is and how high it can go?
17) Litigatori on August 28th, 2009 7.05 pm
I would just like to point out that petrol would not be considered a basic necessity. This is because we use it in cars, which are considered a luxury good already. So making petrol tax-free would benefit the people who are rich enough to own cars, and not effectively target those who need it most.
Wow.. I wonder how many Singaporeans will actually agree with you that car is a luxury good in Singapore. Perhaps you should talk to people from the lower classes.
Litigatori @17
“I would just like to point out that petrol would not be considered a basic necessity.”
- Hello, every of your goods are delivered by automoblies, they don’t drop out of the sky! The higher it is, the higher the cost of goods will be.
“We have one of the lowest tax rate in Asia”
“Shouldn’t we then be counting our blessings already instead of whining about how high it is and how high it can go?”
- Unfortunately there is NO blessing to count, only miseries! The unique Spore Govt’s REVENUE is not just made up of taxes. It includes every means and ways that the govt can collect money from citizens, it is not necessarily in the form of tax. When you eat a bowl of noodle, remember a proportion of the cost of the noodle goes into the rent, it is stealth GST. In fact this proportion could be higher than GST. When mothers work and hire a maid, she pays maids levy, it is stealth income tax, maybe higher than her income tax. There are many more similar stealth taxes. I haven’t yet mention all the monopolised state owned businesses.
3) What is there to oppose on August 28th, 2009 4.21 pm GST should go up. more help can be dish out to the needy.
#18 Oxford Dude
Bear in mind the cost of a car here and you will see that it’s not something affordable by the most-commonly-cited-example-of-the-”lower-class”-in-Singapore, the family in the HDB flat surviving on under 2k combined income a month.
Surely you don’t mean to say that a car is a necessity in Singapore, something that we will not survive if we don’t have, like rice or electricity or water? A car is not a necessity. It is a luxury.
And on a sidenote I speak as someone from that lower class, so don’t get snappy so fast.
Litigatori
Is petrol only used in cars?
Not only will cost of goods go up because of higher delivery costs, cost of tranport (buses & taxis) will all go up. Do you understand?
With regards to cars, you are not quite right either. To the disabled, or families with ill children or ill elderlies, a car is not a luxury.
#21 Agent008: “Not only will cost of goods go up because of higher delivery costs, cost of tranport (buses & taxis) will all go up.”
I never questioned Oxford Dude’s post that diesel is more of a necessity than a luxury. Buses and taxis run on diesel. Cars run on petrol. And the delivery costs argument, while reasonable, strays from the big picture of the petrol tax to the public in Singapore who directly use that good
#21 Agent008: “To the disabled, or families with ill children or ill elderlies, a car is not a luxury.”
First, without intent of discrimination, this is a small demographic. I referred to the Singapore public in general when I was talking about cars as luxury goods.
May I state, from observation, that this now completely begs the question of why the debate has suddenly aligned itself to the tax on petrol?
I reiterate that tax relief DOES exist and has been given out by what you call the “Pay And Pay”. Sometimes they DO “Pay And Pay” out to the people.
If No PAP, Singapore sure sink… U guys really duno what is ” yin shui si yuan “. U guys r D** which Only knows how to bite your owner who feeds u…PAP r the best goverment in the world!!! Look at the peaceful enviorment around u folks!
If lowering GST means a drop in prices and make life easier for the poorer section of the society, then I’m all for it. However, my concern is that lowering GST may not lead to that.
Instead, the drop in prices are absorbed somewhere along the line. For example, the 2% increase may have prompted a hawker to raise his prices by $0.50. A reversal of the increase may not translate to a corresponding action by the hawker.
Same as North Korea;
Without Kim, N Korea sure sink……..Look at the peaceful enviornment around them.
#17
Just based on direct taxes, Singapore has one of the lowest tax rate in Asia BUT add GST, than our tax rate shoots up the sky.
#25 mars
Even our GST is comparably lower than other countries. Without taking government aid into account, we have a 7% GST.
European countries like Denmark, Sweden, and Norway have value added tax (equivalent to GST) of 25%. Italy 20%. Germany 19%. UK has 15%, a temporary cut from 17.5%.
Closer to home, China is on 17%. India and New Zealand are on 12.5%. The Philippines is on 12%. Australia and Malaysia have 10% GST.
And you say we have a tax rate that shoots up the sky? I repeat that we should be happy that the government is taking efforts to make sure our indirect taxation is comparably lower.
Dear Imran,
I enjoy reading your nicely written article. However, I like to confirm
GST was originally standing for Goods and Services Tax. You described GST as “General Sales Tax (GST) “. Any comments on this observation?
regards
Mr Ahmed : “…consider lowering the GST rate in light of how it hurts the poor more than the rich.”
Likewise, i would say that CPF affects the poor more than the rich based on the fact that GST is capped at a finite amount of salary and not based on proportion of your income. Once over this low salary limit of $4500, your income is not going into the CPF. A poor earning $1200 per month still needs to contribute about 20%, a sizable amount into their CPF account. A rich earning 12000 per month does not need to deduct 20% of their salary into their CPF account. I hope ALL youths understand this. You will be facing this when you eventually find a job in this crisis.
Its ok if you are OBLIVIOUS now.
Ang Soon Song,
Sorry for the mistake. We’ve corrected it.
Thank you for pointing it out.
didn’t you people hear the justification that GST is to help the poor??
GST is to help the poor?? Huh! oh iggit? or help those elites to increase their projected annual pay rise and to patch up those $billion losses? doubt there is any more $$$ left in the nation reserve to return to the people anymore, so must as well confiscate them all in all sorts of ways (i.e. hdb price hikes, mrt hikes, oil hikes, cpf withdrawal and ERPs etc . . . .)
Please check inflation as well…it sky rockected…..
The GST timing was horrible and everyone knows it…but who cares…66.6% voted them in….how to argue…what to say…
I just don’t know where we are going and what we are going to do..in time to come…No clear picture ahead for Singapore….and Singaporeans…
In this debate, we must keep in mind the Singapore government’s stated objectives on taxation. When GST was first introduced on 1 April 1994, Dr Richard Hu, the then Finance Minister clearly articulated the government’s position. Singapore, he said, would be moving away from reliance on direct taxation while increasing indirect taxation. This had the twin benefit of making Singapore an attractive destination for foreign investment while, at the same time, widening the tax net. The top marginal rate of income tax has accordingly come down steadily, from around 30% two decades ago to 20% at present.
The writer’s point, nevertheless, remains valid that GST affects lower income households more than higher income ones. Rather than playing yo-yo with GST rates, however (reducing them in a recession and increasing them in good times), Oxford Dude’s suggestion at #9 makes much sense, particularly in respect of basic food items and pubic transport costs. The government can give much relief to lower income households directly by doing away with GST altogether on essential items upon which lower income households rely.
Here it would be instructive to keep in mind Hong Kong’s experience. Hong Kong debated the introduction of a 5% GST in July 2006, promising to make the move revenue neutral. The plan ran into fierce opposition and the government was forced to withdraw the proposal in December 2006. (Hong Kong already has the lowest effective personal income tax rate at the top margin of about 16%).
Kenneth Jayaretnam and others, along with this writer, have been calling for Singapore to save less (one way is by giving GST relief as mentioned above) and spend more in the domestic market. Along with a more selective immigration policy, these measures should go a long way to alleviating the plight of those at the bottom of the economic pile.
#30,
No worries, my pleasure.
Informative article, nevertheless.
Thanks to the writer for spending the time writing and TOC for sharing with Readers.
Litigatori,
UK’s GST (they call it VAT) is ZERO % on basic essentials like food.
GST is to help the poor?? Huh! oh iggit? or help those elites to increase their projected annual pay rise and to patch up those $billion losses? doubt there is any more $$$ left in the nation reserve to return to the people anymore, so must as well confiscate them all in all sorts of ways (i.e. hdb price hikes, mrt hikes, oil hikes, cpf withdrawal and ERPs etc . . . .)
Part 1: Rebates are better.
So assuming the goal is to help the poor (and ONLY the poor),
we should not reduce GST. Instead we should leave it as 7% and give them rebates.
Say there are 2 people- Mr Rich earning 10,000 and Mr Poor earning $100.
they both spend their entire income and pay 7% tax ($700 and $7).
If we reduce to 5%, they pay ($500 and $5)
Great, Mr Poor saves $2. But we just lost $205 of tax revenue because we let Mr Rich pay less tax too.
Wouldn’t it be better if we leave everything at 7% but gave Mr Poor a rebate of $2. Mr Poor will still pay $5 of tax (same outcome) but at a smaller loss of tax revenue of $2.
So maybe leaving it at 7% and giving GST credits is not such a bad idea.
Part 2: Be careful of people.
So if we want to help the poor (and ONLY the poor), it probably makes more sense to give GST credits.
The interesting thing is when Mr Rich wants to reduce his own tax but can’t find a compelling reason to do so. He will cunningly piggy-back on the ‘help the poor’ argument but advocate the broad-based reductions so he can quietly benefit from it.
Moral of the story: be careful of people who cite sympathy for a small grp of under-privilege pple, but advocate broad-based approaches. Sometimes, it is hard to tell if they are really concerned or disguising their self-interest.
hi Prettyplace,
post #32 on August 28th, 2009 11.54 pm
“The GST timing was horrible and everyone knows it…but who cares…66.6% voted them in….how to argue…what to say…”
i know what to say, “66.6% is a few years back. that was before banks went bust, before the 2008 retrenchment tsunami. ;)
As long as consumers are willing to spend by cash or by credit,there is no way
the government would lower the GST.After all,Singaporeans have a lot of confident
in its economy.So who is to blame for high indirect taxes?Preston Loon.
Excuse me Thread Starter;
I think you forgotten that they exists only to help THEMSELVES and NOT the people.
66.6% voted them in when they are not aware that Pappy will screw them by increasing GST. Remember Mr Brown’s ranting in Today ?
Based on official figures, in 2005 approximately 40% of the labour force earned less than SGD 2,000 monthly. This large segment of the population will pay limited, if any, direct taxes
let us correct this. less then SGD 1000 we would say.
go and ask the old and young ones working as a cleaner. take home $650
oh not to forget.. ask the security guard. they take home mostly $1100. mostly now are secretly doing double shift to earn and make it to ends meet. which they have to sacrifice seeing their families and work from night and continue day and go on as much as they can.
wow goverment is HELPING US we have seen it. aunty end up borrow money from security..security end up borrow money from company so this go on. keep paying goverment GST and TAXES and more and down the throat singaporeans are borrowing each other and the goverment borrow us but never RETURN. what a joke the goverment and his PAP !!
next election we all don’t need you.
to all singaporeans.. we would like to say. think for your future or you can still vote and sympathy them and get your throat stuff deep and deeper down with higher GST,TAXES and more don’t be surprise if your income goes even lower to level play with foreign as to say foreign will earn more and singaporeans will sit in foreign shoe earning lesser, we bet it will happen more squeeze. enjoy…………….happily
7) gemami on August 28th, 2009 4.46 pm
I think the government should just go ahead and increase everything … just like Joshua has commented in another thread. Come on and tax us whever we go and whatever we do. The faster they tax us to death the better. This way we do not have to agonize too long. They will surely be booted out at the next GE.
make it happen
really guys if singaporeans has still no brains and vote for them. then sorry to say then they face the rebirth of this so call goverment the new version of those days japanese goverment. cominis. shoot to kill.
the more you singaporeans talk after each election the goverment will stuff all this GST and TAXES and MORE down your throat higher and higher UNLESS we vote them OUT completely. don’t left even a single bugs in loitering around to squeeze us futher
I think you got it wrong. When the economy dives
we SINGAPOREANS dive in head first from 40storey building together.
hahahahahahahaha
23) TiTiTuTu on August 28th, 2009 9.08 pm
If No PAP, Singapore sure sink… U guys really duno what is ” yin shui si yuan “. U guys r D** which Only knows how to bite your owner who feeds u…PAP r the best goverment in the world!!! Look at the peaceful enviorment around u folks!
wow………………….we are very peaceful…………………..thanks you PAP
thanks you so much we love the PAP
PAP are the best in the world.
PAP are supporting us as we are living in the air now with lots of dreams.
with just $650 and all the taxes and stealth taxes mention we are very very happy……………………
thanks you and looking to vote PAP more this time round. maybe give our life to them.
27) Litigatori on August 28th, 2009 9.50 pm
did you look into just GST??
think again. the rest is invisible dude.
think smart not think hard. don’t look far into other country when you can’t figure out how deep we singaporeans is in now.
to all singaporeans.. just trust our words. VOTE them OUT and you will see how much it will benefits you singaporeans. or it is you singaporeans choice again and fear opposition may make use of use which is no different the PAP is doing now and for the past years. no joke 50years and we are living this kind of life here. we are living in a las vegas but don’t forget you singaoreans are actually beggers