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18 Mar 2019
Ministry of Finance
Suggestion View - 471
Why GST is especially bad

Some people think that we need GST and cannot do without GST. They are mistaken.

There are many ways for a government to collect revenue to run the country - income tax, property tax, GST, consumption tax, import duties, excise tax, payroll tax, stamp duty, etc.

In Singapore, we have four additional sources of revenue that most other countries do not have - sale of leasehold land, motor vehicle taxes (including certificate of entitlement and electronic road pricing), levy on foreign workers and the earnings on investment of CPF funds (after deducting the interest paid).

Of all the types of revenue sources, I strongly dislike GST. I find it to be the worse type of tax that a country can implement. 

Why do I hold this view?

GST is very costly to administer. It has to be computed on millions of small transactions every day in Singapore. For a large country, it can be tens or hundred of million transactions. 

The cost has to be incurred by the business entities, but they will be passed to the consumers. 

GST is exceptionally bad because it is calculated on every stage of the value chain. So, one final transaction may have GST calculated several times in the chain. It is collected and refunded many times.

It is really wasteful to carry out this accounting exercise. Although the cost can be reduced with computer systems, it is still a heavy cost. It is more serious for small businesses.

GST is one form of consumption tax. If a country needs to have consumption tax, it is better imposed at the point of import or manufacture, i.e. import or excise duties. It is less costly to administer.

It is practical for the government to decide on the types of products that are subject or exempt from import or excise duties. It is difficult to make this differentiation with GST. 

Many people have asked for GST to be exempted from basic essentials. This is difficult to implement with a GST system. It can be easily done with the import and excise duty system.

I remain strongly opposed to GST. It is a very bad tax from many angles.

Some people have objected to it because it is regressive - i.e. impose a heavy burden on low income people. I agree with this view. 

I also object to GST because it is costly to administer and adds to the cost of doing business. 

I have held this negative view of GST for more than three decades, right from the time that it was first introduced in Singapore.

If a country needs to collect revenue from consumption, it is better done through import and excise duties. A better approach is to avoid GST and consumption tax altogether and collect more revenue from high income earners, i.e. a higher rate of tax on high incomes. 

In the case of Singapore, we already have four big sources of revenues that  most other countries do not have. We can abolish GST entirely, without introducing import or excise duties (except for a small number of luxury items).

Some countries have no choice but to impose consumption tax or GST. But Singapore has a choice. And I am sad that we follow the other countries blindly to implement GST (when we could easily avoid it) and get our economy into serious trouble, with the high cost of living and the high cost of doing business. 

Tan Kin Lian


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