Tan Kin Lian - Perspectives Flat rate tax
Most people hold the view that the lower income people should not pay any tax, and the middle and higher income earners should pay a higher rate of tax, based on their income band.

I have a different approach.

I prefer that every resident should pay a flat rate of tax, between 10 and 20 percent.

How can the low income people afford the flat rate of tax? My answer is - let the employer pay the tax, ie a payroll tax, of 10 to 20% of the total wages. This payroll tax is the cost of employing people. The worker does not have to pay any tax.

What about investment income, such as interest or dividend? The flat rate of tax can be applied on the income.

What about self employed people? The flat rate can be applied on the estimated earnings for that occupation. This will be treated as part of the cost of doing business, and is imposed on the self employed who has to get a license to do the business.

There may be a need to impose an additional tax on income above a large figure, say more than $250,000 a year. This will apply to a small group of high income earners.

I find a flat rate tax (or a payroll tax) to be easier to managed, and will collect sufficient revenue for the government to provide the public services. This flat rate tax can be adjusted according to the public services that is provided.

For example, if the government has to provide a pension for older people or unemployment benefit, the flat rate tax has to be increased.

If the government has revenue from other sources, such as the sale of land in Singapore, the flat rate tax will be lower.

If a flat rate tax is applied, it will replace the GST totally.

When this payroll tax is implemented, the employer can adjust the salary downwards to reflect the fact that the worker does not need to pay the income tax now. This is a one time exercise for existing workers. Workers employed after the implementation date will get a lower salary that is free of tax.

This is just my idea.

Tan Kin Lian

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