TAN KIN LIAN: I have been strongly opposed to the Goods & Services Tax (GST) in Singapore for over two decades. I consider it to be “a burden to the economy” as it adds a layer to the cost of doing business. It is an inefficient way to collect tax.
GST is a value added tax that is collected at various points of the supply chain. Each party in the chain collects the tax and gets a refund for their input tax.
Before a product reaches the consumer, who pays the final tax, it has to go through many levels of “value added”. It is costly to be collecting and refunding the tax at each of these levels. The input cost applies not only to the products that are purchased from suppliers, but also to transportation and services that are provided by third parties.
The argument in favor of the valued added tax method is that the government is able to collect the tax at each level of the chain, rather than at the final sale to consumers. But the goods and services are finally sold to consumers, so what is the risk of leakage?
Perhaps, the risk is that some of the goods and services are exported and the government will lose the tax on these sales to foreigners. The irony is that the government refunds the tax on sales to foreigners, to be internationally competitive.
I do not oppose a sales tax that is collected at the final point of sale. This is the tax that is collected in many states in America.
The advantage of a sales tax is that it can be applied only to selective items. It will be easy to exempt medical services, drugs, food, utilities and other essential expenditures from the tax It can be applied mainly to luxury goods and expenditure that do not hit the poor.
I prefer income tax, rather than sales tax or GST, as the sales tax is regressive and hits the lower income people hardest. But this is a separate issue.
This commentary was written by Tan Kin Lian.
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