There is still a large group of people who thinks that the Goods & Services Tax (GST) is good for Singapore, as it allows income tax to be reduced to attract businesses to set up in Singapore and create jobs for Singaporeans.
Most of these people are misled by the false propaganda that is fed to them over the years by the Government and the proponents of GST.
Multi-national companies
It is true that Singapore continues to attract many large multi-national companies to set up their operational head quarters and manufacturing and research facilities in Singapore.
Most of them are attracted by the tax holidays, and the other incentives given by the Economic Development Board, rather than the lower corporate tax rates.
They enjoy exemption of tax on their overseas sourced income anyway. This is bad for their host countries, and does not benefit Singapore much, apart from creating a small number of jobs for the operational head quarters. Some of the top jobs are not given to Singaporeans, as they are allowed to recruit the “foreign talents” to manage these operations.
Medium size enterprises
I do not see much evidence of companies setting up in Singapore due to the lower corporate tax rates. Tax is only one cost of doing business. The other factors, such as rentals and the salaries and skills of local workers, are also important. These two components have increased significantly over the past two decades, more than outstripping the benefit of a lower tax rate.
Cost of living
The introduction of GST, which increased in stages from 3% to 5% to 7%, is a major contribution to inflation in Singapore. Apart from adding to the cost of goods and services, it also create additional cost to businesses of accounting and complying with GST.
Consumption based
The proponents argued that GST, being consumption based, encourages savings. The ordinary people have the option to save and not consume, and pay lower GST.
This is a fallacy. For the majority of workers, the cost of paying for essentials takes up most of their incomem perhaps more than 80%. They do not really have much choice in avoiding GST by being frugal.
GST Vouchers
The Governemnt has introduced some cash handouts, called GST vouchers, to help the lower income people to offset the GST. This scheme does not benefit the large proportion of workers who earn above the threshold to qualify for these vouchers. They are the middle class that form the large proportion of the population, and is the group that is being squeezed by the high cost of living.
Big beneficiaries
The big beneficiaries of the GST system are the high income earners in Singapore – those that earn $200,000 and more. They earn their income from working in Singapore and enjoy low taxes.
The proponents of GST argue that high income tax will drive these talents away from Singapore. This is a fallacy. They cannot earn these income by working in other countries. Take a look at these high income earners, i.e. corporate CEOs, bankers, lawyers, doctors, property developers, political leaders, and you will understand why they like GST.
Conclusion
GST has been harmful for the economy and for most working people in Singapore, especially the middle class. It is better for GST to be scrapped and replaced by higher income tax for the high income earners. This was the case in the past, before the introduction of GST in Singapore.
Tan Kin Lian
*Kin Lian retired from NTUC Income on 28 February 2007, after heading this cooperative for 30 years. He was a Presidential candidate in the 2011 Presidential Election. He now runs a consultancy company. He blogs at www.tankinlian.com to give his views on insurance, investment and financial planning for the benefit of consumers.