Wednesday, November 4, 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

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.

Cost of Borrowing

Here is a chapter from my book TKL Financial Planning. It advises young people to build up some savings and avoid spending on credit cards,which carry a high rate of interest.

Rountable on social and political issues

I had a roundtable discussion with three young people about social and political issues in Singapore. We started with different perspectives and managed to find common ground on the following issues:

a) Educate people about the values of honesty, fairness and public service
b) Tell consumers about their rights under the Consumer Protection and Fair Trading Act and the Unfair Contracts Act
c) The slogan "cheaper, better and faster" is not good and not fair for workers
d) Media to reflect honest and diverse views
e) The standard of business ethics in Singapore is rather bad
f) Singaporeans need to improve our social behavior