Tax Write-Up 2021: The case for a 9% GST

By Joel, Liang Wei, Zhi Wei (Research and Training Department)

The federal government should maintain a healthy tax environment to preserves future equity for Singaporeans. With the assumption that the consumption patterns remain constant, Singapore Government will be able to collect an additional S$3.2 billion annually just by increasing the GST (Goods and Services Tax) rate from 7% to 9%. With the additional tax collected from the citizens, the Singapore government will be able to operate healthily with a federal budget surplus.

Firstly, GST is a broad-based tax. This means it is a stable source of government revenue, which is relatively free from domestic production and distribution distortions.

Secondly, the implementation of GST evens out the playing field for foreign and domestic supplies as it favors neither the imports or exports. This is especially so with the introduction of reverse-charge mechanism for B2B supplies of imported services, and the overseas vendor registration scheme for B2C supplies of imported digital services.

Thirdly, GST doesn’t have a discriminating effect on savings and investment. It is a consumption-based tax. The individual’s consumption is directly proportional to the amount of GST he has to pay. Hence, a larger amount of GST is collected from big spenders.

Nevertheless, the increase in GST would lead to necessities becoming more expensive, which remains an issue for the lower-income individuals. However, this problem can be eased by through providing subsidies in the form of GST vouchers to such individuals to offset the additional amount of GST that is to be paid. Therefore, the rise of GST can be effectively neutralized when the Singapore Government is able to finance the additional costs to the lower-income individuals.

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