Monday, February 08, 2010

Taxation and social benefits (2)

Here are the survey results. It is based on 18 replies, which is insufficient to give a representative view.
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1 comment:

Robert Tan said...

All taxes have pros and cons. This is probably why it's better to have a few methods of taxation and not rely too heavily on any 1 method.

I don't know how much the government collects from GST and how much it collects from income tax.

Assuming it is 50%-50%, to abolish GST, all else being equal, average income tax will have to double.

What is a reasonable average rate for income tax? 15%? 20%? 30%? 50% It's subjective.

I suspect that for many people, they will not be happy to pay 50% tax on their income.

If one earns $20K annually, he will not be too happy to pay $10k income tax.

If one earns $100K annually, he will also not be too happy to pay $50k income tax.

If one earns $500k annually, he will not be too happy to pay $250k income tax.

So the list goes on. And what is a reasonable rate of income tax? It's probably difficult to be precise - maybe 20% to 30%? Even at 30%, some will still not be happy.

But how much is the rate of income tax required to be raised for the same amount of revenue to be collected if GST is to be abolished? I suspect that the increase will not be acceptable to many.

If not, then either the government has to either spend less or look at other sources of revenue if GST is to be abolished.

In my opinion, GST should be retained. Whether it should be 3%, 5%, 7% , 10% 15% etc, is another matter to be decided upon.

As for the poor and it being a regressive tax, I think in absolute terms, the more wealthy pays more GST because they consume more. The government can collect GST from everyone and give targeted help to the poor. By abolishing GST without increasing other taxes reduces the ability of the government to give targeted help. And increasing income tax to level to compensate loss of revenue from GST is probably too much income tax for most people.

Just GST alone is not good. Just income tax alone is not that good either. Best to have both sources of revenue.

February 09, 2010 10:27 AM

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