Thursday, November 05, 2009

GST is unnecessary for Singapore

I have always considered GST to be unnecessary and unsuitable for Singapore since its introduction many years ago. Here are my reasons:

a) GST is a wasteful and inefficient method of collecting tax. It requires every transactions to be counted. Each person handles many transactions every day. It cause a lot of work for consumers, business, and tax collectors.

b) It is better to collect adequate tax using the income tax system. Collecting tax by GST adds another layer of administration.

c) Singapore already had an efficient system of collecting tax from income, property, workers levy, vehicle taxes (ERP, COE) and land premiums. There is no need for GST as the government already collected sufficient tax for its needs.

d) Singapore does not spend much on social welfare. There is no need to collect GST to fund the government expenses, unlike other countries that have high welfare benefits.

e) Introducing GST to reduce corporate and personal tax is a bad strategy to attract high income people to move their tax base to Singapore. It takes tax away from other countries and will cause them to retaliate.

f) Giving GST offset to low income people to compensate for GST on essential products is creating unnecessary work and confusion.

The accountants and bureaucrats like GST because it means more business and jobs for them. But this wastefulness has to be paid by the rest of the economy, and in the higher cost of living and a more stressful life.

I understand that Hong Kong does not need to introduce GST. Like Singapore, the government collects sufficient revenue from land sales.

I spoke to a businessman recently. His family had developed a large distribution business in Singapore for over 40 years. They scaled down their operation recently and moved to another Asean country. One of the contributing factor is that GST has made Singapore uncompetitive as a shopping destination.

I know that the Government will not remove GST. But I will still like to point out that it was a mistake for Singapore to introduce GST (and reduce income tax) in the first place. It is one factor that led to our economic decline.

Tan Kin Lian

From Wikipedia - GST in Hong Kong
Goods and Services Tax (GST) was a proposed Value Added Tax in Hong Kong. Consultation over a period of nine months was launched on 2006-07-19 and stirred considerable controversy.

It launched a fierce debate amongst local taxpayers, lawmakers, journalists, politicians, who hotly debated the need for the tax, and the shape any taxes should take. The plan to levy GST was dropped on 2006-12-05.


Anonymous said...

I beg to differ. GST is tax on consumption. Just like COE,and ERP for motorists, telephone charges count by the minutes for residents, etc.

Parka said...

There's one thing I like about GST though. It's not compulsory like income tax -- meaning you have the option not to pay if you don't buy anything.

It does reduce the competitiveness of local companies. For one, I no longer buy books from Singapore bookshops as their prices are higher than some online bookshops overseas AFTER SHIPPING.

Anonymous said...

Well done, well said, Mr Tan.

Very convincing. Why ask to poor to help the rich using gst?

If I am rich, it is my honour to help the poor by paying more income tax.
You have provided good reasons from a different angle.

Vincent Sear said...

I think that GST is an effective way of taxing foreigners in Singapore, especially tourists. Only big receipt items above S$500 can be GST refundable. Otherwise tourists also contribute to the tax revenues on all routine and miscellaneous daily expenses.

I got into this line of thinking when I was in the US years ago. The California sales tax (equivalent to our GST) was then 10% (not sure how much now). My local American friend remarked to me, yes we all pay, and tourists pay too. Then the money all goes to local social and community welfare. So the idea is good, but it's the political wrangling and mismanagement of the money in the system that has gone wrong.

So along this line, if the Singapore government can continue to provide equitable and beneficial relief packages to citizens out of GST revenues, then it should alright even at 10%.

Anonymous said...

Ever notice that whenever the authorities boast abt S'pore's low tax base, they always mention low personal income tax and low corporate tax, but never mention about rising GST?

see the half-truth?

when GST was 3%, it was still bearable. Now 7%. Soon it'll be greater than 10%

BTW, HK's big reliance on land sales revenue pose a real threat because they are running out of viable land to sell. They hv already started to debate abt GST. The govt may hv failed to implement recently, but it is not the death of the issue yet.

GST can be good, can be bad. The principal as a different source of revenue is not bad. But GST as a steadily increasing stealth tax is extremely bad.

S'porean working in HK

Tan Kin Lian said...

A tax is a tax, whether it is on consumption, income or any other method of calculation.

Each of us should pay our tax, which is used to provide the services needed by the population, e.g. law, order, cleaniness, security, greenery.

We should have an fair and efficient way to collect the tax to pay for the services.

GST is a bad tax because it is cost to administer and gives a lot of added cost to consumers and merchants.

Tan Kin Lian said...

From Wikipedia

Goods and Services Tax (GST) was a proposed Value Added Tax in Hong Kong. Consultation over a period of nine months was launched on 2006-07-19 and stirred considerable controversy.

It launched a fierce debate amongst local taxpayers, lawmakers, journalists, politicians, who hotly debated the need for the tax, and the shape any taxes should take.

The plan to levy GST was dropped on 2006-12-05.

Anonymous said...

Well said Mr Tan.

However, the damaged is done, and I don't think government will revert that. Since the GST collected will go to more rebate and more grant to poor people. People dun feel the pinch when taking money to buy something, they will feel the excitement when a $400 cheque comes from government in form of rebate/grant.

The government will then justified GST by saying more goodies handling out to people, creates accounting jobs, keep money flowing in the economy, also to keep them in office (because of goodies hand out). It is a win win for them.

Can we reverse GST ? Yes, we can by changing the government. Mr Tan please lead and help us.


Anonymous said...

I agree with Mr, Tan that GST creates additional work for all. It is counter productive as the work done does not add value.

Anonymous said...

On your point d, it is not true to say Singapore does not spend much on its social welfare. Indeed Singapore pays a lot salary in Millions to its ministers. Why say this?

I think of it as a selfish govt selectively giving welfare benefits to its own ministers but excluding ordinary citizens.

Govt ministers salary must be seen as a welfare system because no govt in the world can justify paying so much in salaries.

As soon as we take away all this minister's welfare, all ordinary people should have no need to pay GST.

David Cherbonnier said...

You've highlighted a valid point, in fact, when is GST beneficial given the logistic and administrative support it requires.

I seem to remember when GST was introduced part of the logic was to tax those who could afford it through their expenditures. In that regard it joins the hollowed ranks of consumption based, ERP, and fuel tax and affluent regulated, COE, Road Tax, conveyancing fees and Stamp Duty.

However it's impact is similar to development fees in the trickle down affect and neither are value added.

Design and manufacture of goods for export will bolster the economy and in theory is zero rated in terms of GST. But the logistics of determining what is zero rated or in some cases exempt in regards to ingredients being foreign manufactured or supplied versus local supply or local with what degree of foreign content is a nightmare.

Probably the epitome of this is the Oil Rigs which I'm sure contribute favorably to the GDP. Given the number of vendors,suppliers, contractors,subcontractors, foreign, domestic and mixed contributing to the final Zero Rated Product, documents for one rig alone could probably fill a good sizede broom closet. if recorded on Thumb Drives!

Whoever thinks GST's merit is fair taxation of foreign tourists doesn't recognize economics of scale. Nor have they noted Airport Tax, paid by locals as well as tourists, often exceeds the cost of the flight.

In short, does the ends justify the means.

Anonymous said...

Government always maintains that GST is needed to fund its budget shortfall. However, we should note that the Government does not use land sale revenues to fund its budget since it considered land sale revenues are past reserves and should be "locked in". Based on past records, Government land sale revenues are so huge that they should be able to fund the shortfall in budget. In conclusion, the net effect of using GST and not the land sale revenues to cover the shorfall in Government budget is that overnment is getting richer and the people are getting poorer, in another word, the cost of living of the people is getting higher and the standard of living of the people is getting lower.

Anonymous said...

If you study carefully into VAT, you will understand better why it is bad to average, common people (but of cause it is good to the rich).
Just could not understand why the average people also could not "see thru" and probem, and yet still support it??
We hv been brain-washed for too long?? and cannot think independently??

Anonymous said...

Why HK has no GST and yet its corporate tax is lower than S'pore?

Unknown said...

Point out to 3:54PM Anonymous that HK does not need to worry about defense budget.

StFual said...

Consumption taxes are harder to collect but also much harder to avoid. Many people do not pay income or other taxes through avoidance. At least they pay some tax this way.
Provided such taxes are not applied to basics ( basic food and water) they are fair since if you can consume you should pay something for the services you get realted to supporting that consumption.

My view is the annual road tax should be added to the price of fuel or the ERP. Those that use the roads the most would pay the most - this is an ideal case for consumption tax.

Anonymous said...

GST has been the major cause for inflation in Singapore. It makes all goods and services more expensive and costly. Everyone has to think twice before he want to spend on something. As it affects most housewhole expenditures, and people are cautious to spend,all business will then be affected. As a result, jobless rate will definitely goes up. This is ills of GST.
The top leaders in the gvt do not feel the pinch of GST as they are drawing world class salaries. 7% of GST to them is only peanut. Do they think about the poor income groups? Eating out in a restaurant is considered a luxury to them.
The govt is getting richer and richer as people are getting just enough for housing and food. Do away the GST will be a blessing for all Singaporeans.

Anonymous said...

Mr Tan,
Your comment and discussions about gst is very educatinal and useful to us.
Many people, especially the average and common people still not fully understand and appreciate the harmful effects of gst.
It is hard to understand why some common people also support gst.
sporean need to have more info, and to understand the implication better.

Vincent Sear said...

Hawkers are the chief beneficiaries of lax tax policies in favour of not driving food prices up, but are also the chief culprits and exploitors of GST, driving food prices up for their personal profits.

For example, you go to a supermarket and buy a pack of instant noodle or a can of instant soup. Price S$2.10 inc. 5% GST when it was 5%. Then it became $2.14 when GST was increased to 7%. Fair enough. You go to a bookshop to buy a book or CD, same, extra 2% from 5% to 7%.

You go a a hawker, a S$2.00 plate of noodle became S$2.50. That's 25%!? Their powers of imposing taxation and inducing inflation seems to exceed those of the government exponentially.

Anonymous said...

You comment on "high admin costs" is very intelligent and interesting. I have never thought in this way, that it is worthwhile to count the beans and peanuts. I can only say that it is always good to hear "alternative" view.

Anonymous said...

Dear people, if GST/VAT is really unnecessary/useless, why almost all countries in asia pacific have implemented GST/VAT (except HK, Brunei and Malaysia)?

Why HK has scrapped GST implementation but now has to look for alternative source of income for the government? Why IMF said that it is matter of urgency that Malaysia has to implement GST?

Also, why is it now a GLOBAL trend to reduce corporate income tax and to increase indirect taxes e.g. VAT/GST? Can Singapore attract investments with high corporate income tax rate?

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