Raise GST and distribute rebates more widely
TOMORROW, Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam will deliver the Budget statement in Parliament.
Will there be an increase in personal income tax on the rich - as proposed by some well-intentioned Singaporeans - to narrow the income gap and have more equity in wealth sharing?
Contrary to the proposals by these Singaporeans, I hope the Government will raise the goods and services tax (GST) rate, from 7 to 8 per cent, and gradually to 10 per cent.
The Government should reduce rather than increase the direct income tax rate, in tandem with the GST rate increase. This would encourage more Singaporeans to work, be productive and aspire to earn more in the course of their working life, either as an employee or as an entrepreneur.
Taxation must not dent the human desire to excel at work. Raising direct income tax would have this effect.
Taxation is unavoidable and, like death, certain.
Unlike direct income tax, GST is for all to pay only if we spend. It encourages savings.
All Singaporeans and non-Singaporeans, including tourists, pay GST when using transport services, entertainment facilities, et cetera.
The indirect GST consumption tax is more effective in casting a wider net, compared to direct taxation. Some with good intentions want zero-rated GST for certain items but this would benefit not only the poor but also the rich and tourists when they consume these items.
Some will avoid direct taxation legally and society is the poorer for it. GST can counter tax avoidance, but not direct taxation.
To make the GST system less regressive or even completely non-regressive, and to counter critics who say that it is, the Government should include in the 2014 Budget the intention to distribute GST rebates far and wide to reach not only the sandwiched middle class, but also all the middle-class households.
To achieve this aim, the Government should enhance the GST rebate system such that it would have the effect of rendering a household's $6,000 annual spending on basic necessities GST-free. This is necessary to make our society more inclusive.
As for the lower-income group, including the elderly, retirees, the unemployed, housewives and the disabled, the Government should give GST rebates on a per-household basis, on the condition that the average per-head household earned income is less than $1,800 per month.
The GST rebates for these groups should be such that their entire year's spending is GST-free.
Our GST rebate system is already unique but let us raise the stakes further to make it one that other countries would hope to emulate.