Asia Asian Economy Lower inequality before raising

Lower inequality before raising GST

The Singapore government should consider other means of increasing fiscal revenue, such as reintroducing estate duty tax for high net worth individuals and increasing the personal income tax rates for rich people

Author

Date

Category

- Advertisement -

The planned increase in the Goods and Services Tax () from seven to nine percent will not take place in 2021 due to the ongoing COVID-19 infection, said Deputy Prime Minister Heng Swee Keat on February 18. But on February 28, he said GST is here to stay in Singapore.

Before raising GST, the wealth gap should be reduced. Increasing the GST will aggravate the financial burden on the lower income groups and lower middle class.

GST, a tax levied on goods and services, is considered by many to be a regressive tax system which falls disproportionately on the poor, because they spend a larger fraction of their income on necessary goods like food, compared to the rich.

Singapore has a high Gini coefficient at 45.2 percent in 2019, according to SingStat. The Gini coefficient measures inequality, where zero indicates perfect equality while 100 percent indicates maximum inequality.

- Advertisement -

Some European countries have higher GST than Singapore, but lower inequality. Instead of GST, many European nations have a similar tax, the Value Added Tax (VAT). The UK has VAT, at 20 percent, while the VAT of Italy and Sweden exceed 20 percent. However, the Gini coefficient of the UK, Italy and Sweden are significantly lower than Singapore’s at 32.4 percent, 31.9 percent and 24.9 percent respectively, according to the World Population Review.

The greater equality in these developed economies is partly due to their generous welfare provisions for their citizens which is typical of European nations, as well as their high per capital income. In other words, these rich countries have a lower fraction of poor people on whom VAT would impose a proportionately greater burden.

In the UK, certain classes of goods and services, including food and children’s clothing, which make up a significant portion of poor people’s shopping baskets, are exempt from VAT to make the tax less regressive. Across much of Europe, luxury goods carry a higher rate of VAT than normal goods, so the rich are progressively taxed more than the poor.

India has GST which can be as high as 28 percent for some items. Although India, one of the world’s most populous nations, has millions of poor people, India’s Gini coefficient of 35.2 percent is lower than Singapore’s, according to the World Population Review. Moreover, the Indian government does not impose GST on necessities like meat, vegetables and fruit.

Another populous country, China, has GST in the form of VAT. In 2019, China reduced VAT to 13 percent from 16 percent, which lightened the tax burden on businesses and people. Although China’s Gini coefficient of 46.5 percent is higher than Singapore’s, the Chinese government provides various welfare measures including free public schooling for the first nine years, virtually universal health insurance and subsidies which ensure the poor stay above a minimum standard of living. The Chinese government is conducting a poverty alleviation programme with the aim of lifting millions of people out of poverty.

In , which resembles Singapore as an Asian financial hub and great wealth disparity, the city’s government backed down from introducing GST in 2006 in the face of widespread opposition. Surveys by ’s Financial Services and the Treasury Bureau in 2007 found 60 percent of the public opposed GST. Hong Kong ranks among the 10 most unequal jurisdictions in the world, with a Gini coefficient of 53.9 percent, according to the World Population Review.

Most likely, the ruling People’s Action Party (PAP) will give subsidies and vouchers to some lower income people to offset any hike in GST, as has been its practice. But this will incur administrative costs. In addition, some lower income groups and the lower middle class might fail to meet the criteria to qualify for these subsidies and vouchers. Any increase in GST will come on top of the continually rising costs of petrol, utilities and transport costs in Singapore, aggravating the burden on the lower income and middle-class people. As Singapore households spend more on taxes and living expenses, it will weigh on demand and economic growth, which in turn may reduce future tax revenues.

Singapore runs a structural budget surplus, partly due to the hefty investment income on its accumulated fiscal surpluses. In contrast, China has a huge debt burden running in trillions of US dollars, while the UK and many other European countries run structural fiscal deficits. Singapore can afford to forgo the extra revenue from hiking GST, hence it is hard to justify increasing GST. This is especially the case when mandatory savings for the Central Provident Fund (CPF) can be viewed as a hidden tax, because of the low returns on these forced savings.

The Singapore government should consider other means of increasing fiscal revenue, such as reintroducing estate duty tax for high net worth individuals and increasing the personal income tax rates for rich people. Such measures would redistribute wealth. Other possible alternatives to GST include environmental taxes on corporations, which has generated significant revenue in Europe.

Reducing high levels of inequality should be as important a policy objective as having a highly competitive tax regime.

Toh Han Shih is a Singaporean writer in Hong Kong. The opinions expressed in this article are his own.

Please follow and like us:
Tweet
Share
- Advertisement -

Covid-19 relief funds: Man sentenced to 5 months in jail on 3 charges

Singapore – A former business development executive was sentenced to five months in jail on Thursday (Nov 19) on three cheating-related charges over Covid-19 relief funds. Chow Jia Chuan, 29, resigned from IT firm Tabsquare in April because he disliked his job...

Man charged with criminal trespass and defiling a statue of Mary in church

Singapore – A man was charged in court on Friday (Nov 20) with criminal trespass and  defiling a statue of Mary in a church along Upper Serangoon Road. Race Koh Jun Xian, 37, was alleged to have committed the offences at the...

NTUC, environmental group submit names of candidates for appointment as NMPs

Singapore — At least two groups have submitted the names of their candidates for appointment as  Nominated Members of (NMPs), only days before the submission deadline of 4.30 pm on Monday (Nov 23). They are the National Trades Union Congress (NTUC)...
Please follow and like us:
Tweet
Share
Follow Me
Tweet