Refining The GST Mechanism

By National Solidarity Party

A blanket application of GST affects the poor more than the rich. Fortunately, the measure has rooms for refinement. But will the lazy minds of the government, too used to taking the easy way out, figure out the way to improve the scheme, or will they predictably bully their way through?

The signs are discouraging.

Second Finance Minister Tharman Shanmugaratnam dismissed the notion of GST exemption as flawed by citing the experience of “other countries” and how “it leads to all kinds of distortions.” The Minister was guilty of distortion by omitting to differentiate the plan (GST exemption) from the implementation.

Tharman further added that GST exemption would benefit the well-off who spend more on basic goods than the poor. This again was an exercise in perversion to argue the government’s case without stating the obvious truth – The poor spend a higher proportion of their income on basic goods than the rich.

Refining the GST mechanism does not require advanced sorcery.

For a start, GST can be exempted for daily essential goods like food, utilities, and medical services. This is the simplest form of 2-tier implementation – GST is either applied or not at all to any item.

A variation to the above 2-tier scheme will see the offer of rebates for the low-income needy after the application of the GST. This essentially pegs the GST exemption criteria to income.

This allows the needy to truly benefit from a GST exemption whilst capturing the segment of tax payers who can afford to pay the GST. There is however the concern that the low-income might not even be able to pay for their purchase to attract a subsequent GST rebate.

A truly multi-tier mechanism categorises items into bands, where the most essential may draw a low GST rate, or be even completely exempted from GST. A multi-tier system is inherently complex to administer, but is a more useful mechanism to “tilt the balance in favour of lower income Singaporean” as the Prime Minister emphasised.

To truly allow the government to draw upon the wealth of the rich to help fund the policies for the poor, a bolder implementation is needed, beginning with a higher base GST to draw in the revenue.

GST rate could hence be raised to 10%, and all items are grouped into a few bands. As a result, luxury items (like big cars, private houses, designer apparel, etc) will draw the top GST rate, followed by cigarettes and liquor at 8%, and so on.

Basic essentials would benefit from the lower end of the GST rate, starting from 0% (full exemption) or perhaps 3% (reduced GST). Alternatively, the low-income can be exclusively offered full exemption or reduced GST rate. The implementation will ride on the existing government mechanism for identifying the low-income earners, if the mechanism is as good as the government boasted.

Considering that Singapore has no less than 55,000 millionaires, and over 1,738 income earners with assessable annual income over a million dollar, not counting fixed assets, this bold GST structure will ensure that the rich gets to keep most of their income and that they are taxed as they spend, which they unavoidably do anyway.