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Why GST is killing Singapore
01 May 2017 (354 views)

GST has been very bad for Singapore. We have been going down a slippery slope for the past three decades since the introduction of GST. During this time, the cost of doing business has increased and Singapore has become uncompetitive globally. While GST is not the only cause of this decline, as there are other factors, it does play a major part. 

Prior to GST, we have a higher level of income tax. Income tax is progressive. It taxed higher income people at a higher rate.

When GST was introduced, we lowered income tax rates, which benefit the high income earners, and collected tax on all types of goods and services consumed locally.

ANOTHER LAYER OF ADMINISTRATION
We introduce another layer of tax collection. This is very costly. GST is a "bits and pieces" tax. It is collected on all goods and purchases consumer everyday. There are tens of millions of transactions that require GST to be collected.

GST is collected at all levels of the value chain. At each level, the business entity has to collected the GST on sales and are allowed to recover the GST on their purchases (or GST inputs). This is why I call GST a "bits and pieces" tax.

Two further levels of complication were introduced. Some businesses are exempted from GST. Exports are exempted from GST. This requires businesses to examine the party or type of transaction to identify which "pieces" require GST to be collected and which are exempted. This introduced another layer of complexity and cost to the GST administration system. Most people do not realize that it can be very, very costly.

REFUND TO TOURIST
​We also have to introduce another complicated system to handle refunds of GST to tourists. This system has been subject to abuse and fraud. Some people have devised schemes to get refunds by passing the invoices (for purchases made by locals) to tourists, so that the tourists can get the refunds of the GST.

I generally find it ridiculous to collect tax and allow a refund. Why collect the tax in the first place? Why are we doing unproductive activities? Now we have to employ people to police the fraud!

ANOTHER LAYER OF MADNESS
We have now gone into another level of madness. I saw a telephone bill from a mobile operator where it breaks down every call into those that are GST exempted and that that are GST payable. The call may cost only a few cents but needs to be analyzed using a complicated algorithm on its impact on GST.

Another large government agency has introduced a costly change to its computer system just to analyze which fee is subject to GST and which is exempt. This agency is involved in collecting small and large fees for countless transactions it has to handle. 

I am sure that this new level of madness will spread to other​ government agencies and businesses. It is good for the software companies, but it is a heavy cost and burden to the businesses. Ultimately, the wastefulness will lead to higher cost of living for ordinary people.

WIDEN THE TAX BASE
The proponents have argued that GST helps to widen the tax base and to collect tax from people who otherwise would not be paying income tax. They pointed out that only 40% of the people pay income tax.

Who are the people that would be caught by GST? They are the retirees, unemployed and the self employed.

Do we really want to tax the retirees and unemployed, and increase the cost of living for them? The government has introduced GST vouchers for these people to mitigate the burden of GST. This is another level of madness. We give vouchers to them and collect GST from these people. It is another wasteful activity. 

If we really want to collect tax from the self employed, there is an easier way to handle it. Most of the self employed, such as taxi drivers, hawkers and contractors, need a license to operate their business. They can be asked to pay a monthly license fee and be exempted from income tax on the self employed income (which most do not declare anyway).

ATTRACT BILLIONAIRES
Another reason for introducing GST is that the income tax can be lowered and billionaires will be attracted to reside in Singapore. They will bring their income to be taxed in Singapore. They will also bring their business to Singapore and help to grow the economy.

I have not seen any evidence to prove that this helped the economy. We did attract some billionaires to reside here. However, their contribution to the economy has been doubtful.

COST OF GST
I have not seen any indication of the cost of collecting GST on the economy. I make an estimate that it will cost between 1% to 2% of the wages of all working people. The total wages is about $90 billion. So the cost of GST must be between $1 billion to $2 billion every year. ​

We can reduce this wasteful burden on the economy. We can abolish GST entirely and revert to the previous system of higher income tax.

 

Why GST is killing Singapore
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GST has been very bad for Singapore. We have been going down a slippery slope for the past three decades since the introduction of GST. During this time, the cost of doing business has increased and Singapore has become uncompetitive globally. While GST is not the only cause of this decline, as there are other factors, it does play a major part. 

Prior to GST, we have a higher level of income tax. Income tax is progressive. It taxed higher income people at a higher rate.

When GST was introduced, we lowered income tax rates, which benefit the high income earners, and collected tax on all types of goods and services consumed locally.

ANOTHER LAYER OF ADMINISTRATION
We introduce another layer of tax collection. This is very costly. GST is a "bits and pieces" tax. It is collected on all goods and purchases consumer everyday. There are tens of millions of transactions that require GST to be collected.

GST is collected at all levels of the value chain. At each level, the business entity has to collected the GST on sales and are allowed to recover the GST on their purchases (or GST inputs). This is why I call GST a "bits and pieces" tax.

Two further levels of complication were introduced. Some businesses are exempted from GST. Exports are exempted from GST. This requires businesses to examine the party or type of transaction to identify which "pieces" require GST to be collected and which are exempted. This introduced another layer of complexity and cost to the GST administration system. Most people do not realize that it can be very, very costly.

REFUND TO TOURIST
​We also have to introduce another complicated system to handle refunds of GST to tourists. This system has been subject to abuse and fraud. Some people have devised schemes to get refunds by passing the invoices (for purchases made by locals) to tourists, so that the tourists can get the refunds of the GST.

I generally find it ridiculous to collect tax and allow a refund. Why collect the tax in the first place? Why are we doing unproductive activities? Now we have to employ people to police the fraud!

ANOTHER LAYER OF MADNESS
We have now gone into another level of madness. I saw a telephone bill from a mobile operator where it breaks down every call into those that are GST exempted and that that are GST payable. The call may cost only a few cents but needs to be analyzed using a complicated algorithm on its impact on GST.

Another large government agency has introduced a costly change to its computer system just to analyze which fee is subject to GST and which is exempt. This agency is involved in collecting small and large fees for countless transactions it has to handle. 

I am sure that this new level of madness will spread to other​ government agencies and businesses. It is good for the software companies, but it is a heavy cost and burden to the businesses. Ultimately, the wastefulness will lead to higher cost of living for ordinary people.

WIDEN THE TAX BASE
The proponents have argued that GST helps to widen the tax base and to collect tax from people who otherwise would not be paying income tax. They pointed out that only 40% of the people pay income tax.

Who are the people that would be caught by GST? They are the retirees, unemployed and the self employed.

Do we really want to tax the retirees and unemployed, and increase the cost of living for them? The government has introduced GST vouchers for these people to mitigate the burden of GST. This is another level of madness. We give vouchers to them and collect GST from these people. It is another wasteful activity. 

If we really want to collect tax from the self employed, there is an easier way to handle it. Most of the self employed, such as taxi drivers, hawkers and contractors, need a license to operate their business. They can be asked to pay a monthly license fee and be exempted from income tax on the self employed income (which most do not declare anyway).

ATTRACT BILLIONAIRES
Another reason for introducing GST is that the income tax can be lowered and billionaires will be attracted to reside in Singapore. They will bring their income to be taxed in Singapore. They will also bring their business to Singapore and help to grow the economy.

I have not seen any evidence to prove that this helped the economy. We did attract some billionaires to reside here. However, their contribution to the economy has been doubtful.

COST OF GST
I have not seen any indication of the cost of collecting GST on the economy. I make an estimate that it will cost between 1% to 2% of the wages of all working people. The total wages is about $90 billion. So the cost of GST must be between $1 billion to $2 billion every year. ​

We can reduce this wasteful burden on the economy. We can abolish GST entirely and revert to the previous system of higher income tax.

 
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