Thursday, November 05, 2009

Broaden the tax base

One argument put forward for GST is that it broadens the tax base. Why is it necessary to broaden the tax base? What cause the tax base to be narrow anyway?

Let us start with the primary purpose of taxation. A government needs tax to pay for the cost of providing public services to the community. They are many ways to collect tax. Prior to GST, the government in Singapore collected tax from personal income tax, corporate tax, vehicle tax, worker's levy, sale of land, stamp duties, cigarette and liquox tax, betting tax, estate duty among others. The tax collected from these sources had been more than sufficient to pay for the cost of running the government, leading to large budget surplus.

Why are so many people not paying income taxes in Singapore? Here is the most likely reason. Most of them do not earn enough to meet their living expenses, due to low wages. There is really no need to ask them to pay tax, as they are already taxed indirectly through low wages and high cost of living. Why ask them to pay GST and then give them GST offset packages?

There were some arguments that some hawkers have high earnings and do not pay tax. I believe that this issue has been blown out of proportion. They are not many rich hawkers and if the government wishes to tax them, it would be quite easy to do so.

Some countries have a broader tax base because there is a high wages, and everyone can earn enough to pay their share of the tax. The countries which has a broad tax base and levy GST are also those that provide high welfare benefits (which is not the case in Singapore). They also do not have the high revenue from sale of land and vehicle tax that is levied in Singapore.

I do not understand the argument about the need to broaden the tax base or to levy tax on consumption. These are the "secondary" arguments that leave to an inefficient and wasteful system, which is called GST.

Tan Kin Lian


Anonymous said...

GST was introduced to fill the "holes" created by Temasek?

3% GST not enough, so increased to 4%, 5% and now 7%. After 2010/11 GE, not surprised that it will increase to 10%, same as Aust.

But Aust personal incomes are much higher than S'pore and Aust has a broad base of social safety net but S'pore has none.

Anonymous said...

Well, one and only reason is to accumulate bigger reserves, the more the better and the bigger will our foot be in wearing big shoes. We have large reserves and that has certainly been good for inflating our overextended egos.

Forget about them using the bulk of the tax surplus to provide benefits for Singaporeans. This is an area that they do not think fit to speak of.

Anonymous said...

Kin Lian,

You can argue until the cow comes home. Your arguement can be a "noble prize" piece of work but nothing will change as long as the current govt which we Singaporeans have been voting and put them in power for the last 50yrs.

In the next next next elections, we put them again and again and again into power.

Your arguement is academic.

Tan Kin Lian said...

Hi 4:56 PM

Singaporeans have been "educated" that there is only one way, and that is the way of our current government.

My purpose is to "educate" them that there is a different way. I hope that many Singaporeans can learn to think for themselves and decide which way is better. They should also observe what is happening and make the right judgement.

"Education" is important to create the public opinion, which will affect how people will vote in the future.

The education process is long, but it has to start now. I will do my best to educate people in practical and not "academic" matters.

I need people to come forward and help in this educational effort in a positive way - in spote of the challenges.

C H Yak said...

I think the Govt. prefers GST because it is low-cost for implementation and works on as if it is a "profit-maximisation model".

Traditionally, corporate and high income earners pay more taxes. But this is not "enough" to support the high cost of the government and its costly infrastructure. They also want more money to invest and must plan for budget surplus.

The Govt also make money from land sales etc. Corporates find it expensive, either they pass such cost to their workers by paying lower wages or will have to declare lower profits.

If corporates declare lower profits, Government has lesser to tax. But workers then pay a fixed % as income tax under the old model even if wages go up. The Governemnt cannot increase its tax revenue (tax base) but costs is rising and they also need to pay a more demanding public sector which they think is necessary to avoid "corruption".

This is not withstanding it has a low level of welfare expenditure.

Corporates particularly from the private will find all ways to avoid paying corporate tax. When the economy is weak, the Govt. find it hard to find more tax revenue. If wages also fall, they have even lesser to tax under the old income tax regime (a fixed % of income).

So the easier way is to implement GST. It is a "high-tech" low-cost way of collection. Make the corporates collect tax on behalf of the Govt. from the individuals and then handover without a gitch.

They then ask you to spend, even when economy is often called by SM Goh. And both corporates and the ordinary man have to eat or consume, and will have to handover % of earnings as GST. They don't even need to ask the people to declare one year later. It is collected upfront and handover every quarter.

To support the "profit maximisation model", the Govt continues to collect other revenues..petrol, cigarettes, alcohol,land sales, road taxes, property tax, COe, etc.

Theoretically, only the corporates that make profits and the high income earners pay taxes. But actually everyone is already paying tax upfront now and not deferred one year later under the old tax regime, and therefore the tax base is widened, for every expenses incurred head to toe. If you spend on luxury you not only pay the duties but also GST. If you invest on shares, you are also tax. If you make a profit from your share purchase, you are again tax.

In line with the "profit maxinisation model", Govt. can choose to cut medical subsidies, housing subsidies, and limit on welfare spending. If they carry out public projects , i.e. incur welfare expenses, GST is still collected from the contractors through the goods and services rendered for these projects.

Simply, the tax base is wideened with GST but the Govt can retain a small base for welfare expenditures...just like "maximising profits in business".

Hence, costs for the average person who spend spirals...unless you run out of the country to buy from countries without GST and cheaper goods and services.

I think the GST system is not that "wasteful" for the Govt. It is cheap for the Govt. but expensive downstream for the middleman who collect GST for them, i.e., the corporations.

Hence, corporates always scream wages and CPF as high costs and target the workers for cost cutting, but asked for cut in corporates tax rates. The Govt and corporates (espcially larger ones and developers) will never say land cost is high and think of ways to lower and cut land cost because these are considered long-term investments.

Everyone here whether rich or poor will have to pay this "premium" value for our high infrastructural costs. The Govt. and its spendings contribute significantly to the high infrastructural costs.

There is risk of higher GST in future to enjoy this "premium" later on.

Anonymous said...

REX comments,

Mr Tan quizzes us "Why is it necessary to broaden the tax base? What cause the tax base to be narrow anyway?"

Anyone who ever worked in a huge corporation knows the no. 1 expenditure is likely to be manpower costs. R&M (repair and Maintenance), and as well, Cap Ex (depreciation on equipment and new accruals for replacement) for providing basic services, such as repairing the roads, building highways, land reclamation costs etc. can be fairly well controlled, maybe deferred sometimes, as there are alternatives; moreover, competition and technology helps to smoothen costs. There is always room for negotiation and creative people can have ideas to save on these kind of costs.

But - the prime minister and his cabinet's astronomical salaries - there are no alternatives - they are NON NEGOTIABLE and they justified themselves their own renumeration entirely. Many people question the logic of why the prime minister of a city (as Shanmugam declared Singapore to be) is paid 4 or 5 times the President of the United States of America. Perhaps someone could ask Mr Obama next week, catch him in Orchard Road during the APEC meet :)

In my naive thinking, this is major contributing factor for the GST etc and the broadening of the tax base in Singapore.

In fact, unless an opposition party declares it in its manifesto that minister's salaries will be slashed, even if PAP is kicked out, the taxes may still have to continue.


Anonymous said...

Are you all "weird"?

Do you all had actually remembered that garmen decided to use some of our reserve, the first time in entire SG history months ago.

There was a time in few yrs ago where ppl thought that when "Double Party with A grade" rules, we will not going to see President allow the use of such reserve and abuse it.

So even though that was not an abuse, of course but something must be PUT back! So if really that GST goes to 10% and in my children's time going to be 15%, i am not surprise.

This is written by a 18 yr old student.

wjsim said...

An economy only grows by production and not consumption. You get America if you follow the latter.

Production produces demand in other sectors other than its own. My production of shoes is a demand for your coats, for example, and vice versa.

When people produce and saves their money, in other words, delay consumption, this produces additional capital. These are the people we should reward for they sacrifice by putting off the desire to consume. This capital, whether through banks or simply under the mattress, allows additional resources to be allocated to businesses and provide longer lasting employment than consumption can provide. By delaying consumption, everyone gets "richer" as prices of goods fall and real income (the actual goods your money can buy) increases. When people consume and don't produce, HDB prices sky-rocket and everyone feels poor.

However, for political reasons, these ideals will never be attained because most people will feel that consumption tax is injustice, rich people should be taxed more etc. Income taxes punishes production, at any level. For our case, correct me if I'm wrong, someone who is producing and earning a wage of $20k per annum will not be motivated to earn more as from $20k to $30k he has to pay 3.5% income tax. Apply to all levels and any tax claims.

How would you feel if you work half of the year free for the government when you're taxed at 45% in Australia at the top income bracket? Not including all other taxes, just income tax.

Anonymous said...

""as they are already taxed indirectly through low wages and high cost of living. Why ask them to pay GST and then give them GST offset packages?""

Excellent! Well said.

Why make them crippled and then give them a walking stick? To make them always dependent on you? To make them gratful to you forever?

Who is the one hurt them in the first place? Why shd they be grateful to you?
Many are just blind to the facts and felt grateful and appreciative for the "help?" given.

Anonymous said...

"3% GST not enough, so increased to 4%, 5% and now 7%. After 2010/11 GE, not surprised that it will increase to 10%, same as Aust."

Oh yes, they will tell you after GST increment that we are still better than some countries with higher GST.

Read about this jeff's comment in

"they compare to whichever ‘world’ that suits them.
ask about public transport fares, and they compare to london.
ask about press freedom, and they compare to african dictatorships.
ask about income tax and they compare to norway.
ask about minister salaries and they compare to CEOs

its time to vote these corrupt people out of parliament."

don't you think this is a form of corruption whereby the government happily approved policies by using selective worse-case example to justify whatever they want to implement ? Are they any different from con-man ?

Anonymous said...

"But Aust personal incomes are much higher than S'pore and Aust has a broad base of social safety net but S'pore has none."

Even then, Aust and many democratic countries which have higher GST have incurred natural disasters, so their higher GST is used during natural disaster emergency. Whereas Singapore is all men-made disaster by our government like miniBomb, higher HDB cost and cost of living to prevent people from producing baby... etc, and our GST is used to feed the fat pig and Lee's gambling addiction. Where is justice ?

Anonymous said...

"Well, one and only reason is to accumulate bigger reserves, the more the better and the bigger will our foot be in wearing big shoes. We have large reserves "

Please, we never have high reserve. The only reason we have high reason is that they want to prevent ask from taking the money out. How can someone say we have high reserve where half of the reserves have been used for gambling in financial investment and lost big time by some Imperial family ?

Long-term is hogwash where in short-term, the investment gone awry.

Anonymous said...

I am most unhappy paying the GST on medical expenses and consultations at the public hospitals, the bills are already so high and the GST is a real burden. I could save on other expenses, but I could not save on health care.

Anonymous said...

Yes, our government is too blind to see how some of their oppressive policies affect general population as long as the echelon stand to benefit through higher perk and salary.

Anonymous said...

Kin Lian,

The word "education" is actually programming. Singaporeans has been programed from cradle to grave for the past 50 years to believe that this is the only best government in Singapore till doomsday.

The media and various govt bodies and institutions and various other machinary have played very key role in the programming processes.

The programming is so strong and so powerful, that it will take a very long time time (at least another 25 years), huge resources (money and skill manpower) and heavy sacrifices to carry out the de-programming.

As such your plan to de-program is pure academic because you will not live or be active forever and you don't have the resources.

Anonymous said...

to anonymous @2.14 pm nov06

de-programming could be quite fast. Right now the Programmer is still alive so you can't de-program, and all the sub-routines are strictly running as it was designed to do so since 1960's.

However, please be patient. The Programmer is getting very old, and sickly, and surely nature will take its course.

Thereafter, many of the bugs in the program will crawl out one by one as a new era of liberation unfolds. Hopefully, those with brains and patriotic spirit will enter the scene and work out new and creative solutions, supported by the masses.

Then we will see the great Renaissance of the Red Dot. Maju-lah Singapura, progress singapore!


Anonymous said...

GST debate is passe.

I think we should focus our petition on lowering the GST instead. When it has been lowered to below 3% where the tax rev from this source is not so relevant, maybe we can ask for it to be abolished.

If you ask for too much in one go, nobody in authority will listen because it's political suicide. In fact, one may be deemed irrelevant since the camp that argued for GST has won this debate may yearns ago and GST is now 'enshrined'.

Mr Tan, I admire what you are saying. But you also have to be practical.

Tan Kin Lian said...

To 4:53 PM

There is no point in asking for a reduction in GST. If we have to incur the administration cost and hassle, it is better to have a higher rate of GST (and reduce taxes somewhere else).

The savings in administrative cost can only come from a total abolition of GST. In my view, it is unnecessary and wasteful.

I know that the Government will not remove GST, but that is their business. I will continue to state my views and influence the public opinion.

There is no need for GST in Singapore for several reasons that I have already stated. Let us avoid the waste of creating a big administrative machinery when it can be totally avoided.

Anonymous said...

Why frail elderly has to pay TV License at $10 per month?

Anonymous said...

"MiniBomb" & similar products are man-made disaster!!
Why allowed them to be sold in the first place??

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