Friday, April 02, 2010

Goods and services tax (GST)

The Goods & Services Tax is a bad tax in the following ways:

- it is a regressive tax and hits the people at lower income most
- it is a wasteful tax as it incurs a heavy administrative cost to the tax collector and the payer

A better solution is to abolish GST and have higher income tax. If a country needs to lower income tax to attract higher income earners (a strategy for which I personally disagree) and needs to find an alternative source of revenue,  here is a better approach to GST:

- levy a flat rate tax of 4% on payroll and investment income (which produce the same revenue than 7% GST)
- the payroll tax is a cost to the employer but can be recovered from employees earning above a threshold salary

There is a mistaken concept that GST is fair as it is imposed on consumption and encourages savings. A better way to encourage savings it to pay a higher rate of interest (which can be achieved through monetary policy) or to exempt interest from tax. Many retirees earns a low rate of interest on their savings and yet have to pay higher prices through GST.

GST has become so complicated, costly and open to abuse that it is time to abolish it and replace it with a more efficient tax.

Tan Kin Lian


Anonymous said...

Not just have higher income tax but also higher tax on property, cars, and other luxury consumables.

The more properties and cars that the people own, the more they must be taxed.

Anonymous said...

How gst can help the poor??
Still cannot understand.
Is it the other way round??
May be we are "daft".

Anonymous said...

I think the government said that higher GST is to help the poor so dont be surprise that GST is increased to 10% to support an aging population and the poor?

Concerned said...

Generally with increases in property prices almost everybody are worst off except those big property owners, people who owns a few propeties, the government (higher taxes as the bases used for computation of tax rates is higher). When residential property prices goes north, commercial properties follows behind. The lessess of these properties has to pay a higher rental and this in turn has to pass to consumers in the final chain of goods or services charged. So those who own one property, don't be happy because properties prices are rising as you are paying it almost everyday indirectly and without you knowing it through higher goods or services.

Anonymous said...

Anonymous @ April 02, 2010 11:26 AM

Just like you, after all these years I also cannot figure out how the increase in gst can help the poor. To me it will only make the poor poorer.

When the gst is increase every items including daily essential such as transport, food, etcs also increase. The poor who are struggling before the increase will be poorer because they have to pay more for the same amount of things.

Can someone help me to understand in simple layman term what does it mean when our highest paid government in the world said the increase in gst is to help the poor?


Tan Kin Lian said...

In the story of Animal Farm by George Orwell, when the leaders (pigs) make decisions for their own comfort and benefit, they are able to brainwash the other animals into thinking that it is for their (i.e. the other animals' ) good.

GST is being presented in a similar way, that it is for the good of the poor. Welcome to Singapore Farm.

Vincent Sear said...

The government's argument seems to be that, poorer consumes less (therefore pays less GST), richer consumes more (therefore pays more GST). The government collects more GST from the richer to have more money to help the poorer. Superficially, it may look to hold water. However, looking deeper it's leaking like a sieve.

It adds hardship to those pooer or merely making ends meet. The government looks at expenses and consumation. Of course the richer spends more and consumes more and of more expensive goods and services. It doesn't look at it as a percentage of subsistence income, i.e. income that's not discretionarily disposable but necessary required to survive.

For example, a man earning $200,000 p.a. He needs only $150,000 to maintain his lifestyle. He has $50,000 discretionarily disposable income to cushion the effect of GST on his sustenance expenses.

Whereas, a man earning $20,000 p.a., living month to month, hand to mouth, would be very hard hit.

Anonymous said...

GST is mainly to generate revenue for govt. The talk about using the proceeds to help the poor is just BS & PR. Technically the govt can say it is helping by giving 10cents out of every $1 GST that they collect. Just like the old NKF method, also helping the underprivileged what. Of course like the old NKF, the govt wouldn't want to publicise or emphasize the rewards going to them.

Politicians' words are mainly to pacify the masses. Their main aim is to ensure re-election and maintaining power. The numbers don't lie --- if GST is supposed to be helping the poor, then how come GINI Coefficient has been getting worse over the years? The income gap between the 10th percentile and the 90th percentile is getting bigger each year. Rich get richer, while poor get poorer in an environment where prices keep going up, hence making the poorer even poorer-er.

symmetrix said...

I'm no supporter of GST. But let's look at GST from the govt's angle.

Whenever there is a GST increase, govt gives out a whole lot of rebates to the ppl. The poor and those living in 1-rm HDB flats get the most rebates and handouts. According to the govt (and I stress, based on govt published reports) the amt of rebates given to the poor exceeds the additional GST to be incurred by the poor. So, there is a net gain for the poor, and that is how increasing GST helps the poor. Is there a flaw in this line of govt reasoning? Can someone shoot down this arguement?

The govt also says that GST is revenue-neutral to it, or perhaps revenue-negative. This is because of rebates given out and reduction in corporate and personal income taxes. If this arguement is valid, then it is a score for the govt?

Malaysia is planning on having GST after going back-and-forth on this. Whether it will happen is another story. In Malaysia, there is already a Sales Tax (at least at some stores) which is passed on to consumers. Currently these biz do not claim input tax relief from their suppliers. If these stores have GST, at least the merchants can reclaim the Input GST, which will then reduce their biz costs.

To reiterate my 1st para, I'm no fan of GST. Just like other bloggers here, I'm also cracking my head to understand how GST can help the poor. Someone pls enlighten us.

Anonymous said...

All will be explained in the coming elections ( maybe end 2011 ). Just pay attention to the changes in portfolios and in the ministries ( Prof Walter Woon.. etc )
The jostling is done to position people to stand for elections in GRC etc.

All will be explained and it will be so convincing and compelling, all will vote for the same horse in a single horse race.

Are you willing to lose your job?
Are you willing to pen your name down as a volunteer?
Are you willing to speak up with your real name?

well, I am not willing... I have a mortgage to pay, 3 mouths to feed and a car to finance. Dont ask me when I am in my 60s.. I still wont be willing.. my CPF may be withheld even longer!

Anonymous said...

To VS Lingam,

"based on govt published reports...", "The govt also says that GST is revenue-neutral..."

In all the advertisement that I see put up by any company promoting its product, I have yet to see one that condemn its own product.

Yes the government did give rebate but the thing is the rebate is one off but the gst increase is forever. For example, if a power company announces that the electricity tariff will be increase by $20 per month for the next 1 years but to help the poor to cope with the increase it will give a rebate of $10 for 3 months. With the rebate, you will still be paying $210 extra for that year. Should I be happy because there is a rebate of $10 for 3 months?

Recently, I read the Animal Farm. One character that standout for me is the pig name Squealer. He is the pig that acted as Napoleon's spokesperson. He is also the guy who will explain the rules issued by Napoleon and also to appease the other animals unhappiness over the oppressive rules by Napoleon.

Does this character, Squealer, sound familiar to you?

If you are interested to read the Animal Farm, you can read the 10 chapters summary from this link:


Anonymous said...

REX comments on VSLingam's post,

Hello sir, you said "Is there a flaw in this line of govt reasoning? Can someone shoot down this arguement?"

Here i am to shoot the argument.
Yes, the poor get more rebate "every time gST increases". The biggest problem with this argument is that the rebate is merely a once-off rebate!!! So ok, the poor family is quite fine in the first year, thank you Lee Kuan Yew o' Great Master for giving me the gST rebate and help me lead decent life again.
But where is the rebate after the 2nd year, 3rd year... >? The poor gets poorer because one-off rebate is a shot in the dark, disappear after the first year of the GST implementation increase, after that year, the Poor will suffer and suffer ad infinitum. The rich on the other hand, don't even remember this "rebate" stuff, it is small change money going into their fat bank accounts, not noticeble even.
I think GST is acceptable if it is not applied to Utilities bills and basic item like rice, sugar and cooking oil and bread. Or else apply GST to utilities and foodbills only if the consumption trip a certain threshhold. There are many things that can be done, just use their PhD braincells...but the Govt is not at all interested in helping the poor in the issue of GST!!!!!!

Anonymous said...


"...There are many things that can be done, just use their PhD braincells...."

There are ways the government can help but to me this government just want to do things the easy way out. They seems to be getting more complacent. Maybe it is because the spurs is not struck into their hides.

For example, the levy on foreign workers. We know that Singaporeans are generally not interested in the construction industry. We will have no issue with foreign workers working in this sector.

What the government can do is to waive the foreign worker levy in the construction industry but increase the levy in industry that Singaporeans are able and willing to do such as IT.

But what did our world highest paid minister do? Apply the levy across the board. Simple and not much administive work to look into.

This is also the same mentality when implementing the gst. Could they have look into excluding essential items and explore how it could be done? Yes. But did they bother? No.


indexer said...

The thinking behind Singapore's GST, and the preference for consumption tax over income tax, are explained in the following links:

GST in Singapore: Policy Rationale, Implementation Strategy and Technical Design

Thoughts on the REACH blog regarding 7% GST vs 4% payroll tax

MOF Budget 2009 feedback regarding Help for Needy Singaporeans

Greg Mankiw's blog posts on consumption vs income taxation

symmetrix said...

To indexer:

Based on your links, it appears that GST is a better option for the govt than Payroll Tax.

An ageing population will result in smaller working pop and a larger retired/unemployed pop. In this situation, the govt will collect less in Payroll Tax and it will not like that.

Frankly, I don't see the govt backing down on GST after running it for more than a decade. It would be good if it does not raise it any further. What it should do to make it more palatable is to increase rebates/handouts/discounts/concessions, and reduce other forms of taxes. GST is one sacred cow the govt will not slaughter.

thepatweir said...

I hate paying taxes, so i made a video of Mr. GST the hand puppet to explain it to me... you can find it here...

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