When it comes to GST, most citizen on the ground will think it is a liability to them. Of course. No one will be in the right set of mind to love paying tax to the government. The less the better. It is an addition expense that do not bring us tangible benefits.
Tax is going to be here for sure, because a nation needs money to operate. The roads/shelter that have path for us, the street lamps traffic lights, the civil service man and woman who help in the running of our nation, police force, army, air force, etc… There are things that aren’t directly related to us in a tangible way, that makes us who we are, the better lifestyle we enjoyed today.
Of so many tax method, why did the government introduce the GST? A tax that will affect directly those who are poor? This is a questions in many people’s mind. Some more, leaders are saying that GST helps the poor. To many people, this is a ridiculous statement. How can GST, take additional money away from you when you buy daily necessity, be benefiting the poor? It ponder me for a moment, but I understand why it is.
It is probably the experience and knowledge I had which help me understand the reality on the ground.
Before I had Joined the Work Force
I was a student. Excited about the coming working life, I have many questions regarding the tax. What is tax? I learned that tax is collecting a fair share of money from the people for the purpose of running a nation. Every Singaporean contribute their fair share of tax for nation building. What I did back then in school was to visit the library and borrow the “Singapore Master Tax Guide Handbook 2003” read. I knew I would need it in future, and photo copied the whole book. This handbook is still with me after all these while.
The tax system in Singapore is clearly a fair and empathy system. The poor pays no personal tax if they earn little, and those who earn more pay more tax. It is an incremental tax system. It reflect our a mediocrity system, allowing the poor opportunities, or a better advantage compare to the more successful ones to stand up in the society.
There are Flaws in Tax System
This personal tax system seems pretty good and decent. Low income fellow Singaporean pay less personal income tax. Poor people should benefit more then people who are already successful. But in reality, it doesn’t work this way. Why?
How Tax Look like On the Ground
As I recall my first encounter with taxation in Singapore.
I was still in my first year of working life. My salary was not that high. It was also my first year. I did not received any tax letter from IRAS, because I was not tax by the nation. Wanting to get to know more about taxation, an opportunity came along and I volunteer myself to help people file their tax using IRAS online tax filing. It was still a new system back then. Convenient, but many still don’t know how to use it. This system can help to reduce the long physical queue at IRAS office during the annual tax filing period. We were giving a quick training how to use the system, how to help resident file the tax. I was assigned to Radin Mas community centre which is near Mount Faber.
Uncles aunties in the queue waiting to be serve by us. Not very crowded, the environment is rather clam and relax (as far as I can remember). Most people who do their own tax reporting is sole proprietary type, insurance agent, . Those under employment type usually has a form from the company stating the information that they need to report. Nowadays, employee don’t even need to report much as company are submitting for them on their behalf.
There is this one incident that left a deep impression on me. An uncle who was then an insurance agent came to my desk. We started off by me asking him some simple questions, which allow me to fill in on their behalf. He told me how much he earn as income for the previous year, claim on deductible allowance from the IRAS. There are a number of tax deductible like NSman, taking care of mom, etc… Something like that.
As a volunteer, we are only making the declaration on their behalf. They have to acknowledge. At the end of the submission, I shown him the income amount that he has declare for the year, and the tax amount that he is expected to pay. Ponder for a while, he ask me to go back to the top of the page to adjust the income. He explained that as an agent he also has expenses like name card, marketing material, etc… There was no requirement that they need to show proof on their income or things like that. I act upon his request and started to deduct his income base on his verbal instruction. After we are done, I scroll down to the declaration page. This time round after the adjustment, his income is below the taxable amount, and no tax is required from him. This was what the system indicate.
From that moment onward, the impression upon me was that actually IRAS is actually quite lenient about how people declare their income tax. You can declare how much income you earn, and this open opportunity for people to under declare their income. For employee working for companies, they are into the auto-inclusive scheme, so all income reporting are done by the company, which is more efficient and much more fairness.
I always thought that it should be a strict process. How much we earn, we will need to declare. Everyone should contribute a fair share to help run the nation. The reality is, people don’t like to pay tax. If can avoid, why would people not? I can also understand that it will cost more money to hire investigator to check if people declare their tax correctly. The approach used by IRAS is usually to catch those big of tax evasion case and report the news big big on the newspaper, hoping to deterrent other people from doing the same thing. This is clearly not a fair and equality system that Singapore has installed into me.
Personal Income Tax is not Fair
Personal income taxation may look very innocent in theory which many people believed, is actually a loop hole for people who have the thoughts of evading their tax. If people can avoid paying for tax so openly, then it is also possible that there are many more who can do it formerly.
For those employee who are working honestly for a living, they contribute a fair share to the nation building. For another group of people who are smart and wants to evade tax, it is natural that they do whatever to help them conserve their resources. It is human nature that we want to keep more money for ourselves. This is clearly not fair.
Running a Nation, Needs Money
A nation need money to run the nation. Money is collected through tax. If more and more people don’t pay their fair share of tax, the running of the nation will be tougher. More people to take care, but the tax collected is not enough to run the nation well. Naturally, pressure for the government to rise the tax will be there.
But the thing is if the government rise the tax, those honest hardworking people will be paying more. While those smart people who wants and know how to evade tax can continue to pay no or less tax. Rising tax is clearly not a good choice. It punishes those hardworking people and it has a loop hole which allow smart people to evade tax. If this system is allowed to be continue, the lower income, hardworking group of Singaporean will suffer more in long run. Rich is going to get richer and poor unknowingly get poorer.
Although I see other people do it, in my mind I know it should be this way. It makes me want to learn and understand the proper way to account for our income. It was a time when I started to learn and understand more about tax. From the tax master guide, I also read about GST.
Why GST is a Fair Form of Taxation?
This is where I start to appreciate the GST method of taxation. The very first policy I see in Singapore which provide every citizen a fair systematic way of contributing funds for nation building.
GST start in the early 90s at 3%. At the same time personal income tax was reduced. It is a policy to shift the collecting of tax from goods and services, instead of from income tax. If you are wealthy, spend more, you pay more tax. You are poor, spend less, you pay less tax. If you are wealthy, you save & spend less, you pay less tax, money keep in the bank waiting for inflation, your money will be depleting in no time. If you are poor, you spend a lot of money, it simply means you are not poor.
People can declare that they are poor, but if they can spend a lot, it simply means they belong to the category of selfish people who earn more money but keep saying that they are poor. It was impossible to catch people evading tax, because people can declare lower income. With GST things change. Everyone pays the same percentage regardless of how much you earn. If you don’t spend, what for you earn your income for. For display?
GST is a fair tax system because it is difficult to avoid paying tax.
Helping Nation to Collect Tax
Businesses who choose to be GST registered are helping the nation to collect the tax from people. At the same time, they are able to claim back the GST that they have spend on. The GST collected will be most of the time higher the GST claim. This means that there is almost always a surplus GST tax to be handled over to IRAS. GST is essentially a system of collect fair share of taxes on behalf of the government. All income and GST claim, collected has to be accounted through invoices, receipts. Accountable.
Businesses who registered as a GST company will not be affected by the GST. In fact GST reduces their cost of business compared to business who didn’t register. It become a self sustain system whereby businesses will automatically opt in to help the nation collecting tax. GST is a very efficient tax collecting system, collecting the right amount of tax from the right people.
Businesses who do not register for GST will be like normal consumer. They are not able to claim for the GST they consumed. Especially for sole proprietary business, some may not be honest and do not do proper accounting. Most of the time they are not check upon, and can easily escape paying tax. They declare tax similar to declaring personal tax. They can choose to evade personal income tax, but they will find it very difficult to avoid paying GST.
I often encourage businesses to register for GST. Some business owner is very stubborn and instead that they don’t want to be GST registered in their own perspective. They insist that they don’t want to have their customer pay the GST tax. Yes, you may have see this before. “No GST”. Customer no need to pay for GST, make customer happy. But in reality, customers are paying the GST that the business cannot claim for his business expenses. For business which do not have much expense except employee’s salary, it is better for them not to be GST registered.
Competitors who are GST registered are able to claim back the GST paid. This makes their goods cheaper compare to a competitor selling the same product.
GST for Poor People
“GST is to help the poor” statement made by Finance Minister Tharman Shanmugaratnam.
Many thinks that it is the most ridiculous statement that they have heard. GST is taking money from everyone, including the poor and announce boldly that GST is helping the poor. It is understandable that most people find it ridiculous.
When I first heard about this statement, it was quite ridiculous statement even for me because at that time I have not yet be able to link GST helping poor people. I was aware that GST is a fair system. And because of what of the many numerous experience I have with the tax system, reading the tax guide, going to IRAS seminar, volunteering, it started to sink into my mind that what Mr Tharman said is correct.
If you have read through what I wrote above, you should have right now a better understanding of the perspective that I am coming from, and why GST is fair and is helping the lower income group of people.
GST helps the nation to collect the correct amount of tax from the people. No bias, regardless of race, language or religion, rich or poor, everyone pays their fair share of GST 7%. This is in line with a mediocrity society that the government is pitching. You can cheat by claiming that you belong to the low income group, but GST never collect the wrong tax, because it is collected base on percentage all across the board.
When you open the windows for fresh air, there will also be fly’s and mosquito flying in. On one policy can be perfect. This is true for GST. The government also understand that the GST though is effective in capturing the right amount of tax that should be collected, it can be a burden to the poor people. This is where the money collected is return back to the people.
Government has collected GST, but a portion of the collected tax is redistributed to the people base on our declare or physical situation. It is difficult to assess people’s wealth individually. Who will enjoy declaring that they are rich, and get less GST rebate. Simpler method has to be used across the board. How big your house is, an example can fairly indicate the income level that you represent. The bigger house you live, the less you get. I think it is a fair assumption.
Of course big house means you are rich, may not be totally true, but as government, you need to think about the execution. Checking on individual takes up expenses, wasting public funds. Instead of spending money to hire someone to check on your citizens, might as well save the money and distribute to the people.
The GST rebate is enough to differential and covers back the GST paid for daily necessity. If a lower income family receive $300 as their GST rebate, it will mean that about $4000 dollar of their spending is GST free for each individual. It turns out to be $333.33 for your monthly necessity expense, about $10 spent everyday is GST free.
There is always a line that the government have to draw. Those who is sandwiched in between will want more. There will people who wish they don’t have to pay GST.
Everyone Play Our Part to Build Our Nation
Everyone plays a part in nation building, everyone contribute a fair share. Fair share will be defined by the government and not individual’s standard. Everyone face the same tax burden and level of expenses in Singapore. If these doesn’t not create a fair level playing field. I really don’t how any other policies will.
If there is a choice, I would rather to be tax with a higher GST and $0 income tax.
Think about it. All Singaporean and people have ideal. Ideal almost always starts with a good in mind. The reality may not often be the ideal that we want to have in life.
If not for the GST, we may be as bad as Malaysia now. Slow economy, reduce in subsidies, and now citizen protest across the country, making economy worst. An even more difficult time for the PM to implement GST, which will takes years to see any result, and a day to see protest on the street. They are rejecting a scheme that is going to help them create a fair and equal society that they are wanting to have. Counter initiative isn’t it.
In the fast pace of internet today, it is important that we analyse the situation with a fair and balance mind. Every policy has it pros and cons balanced. 5 disadvantages that you can think of, you will need to dig out 5 other advantages that a policy can create.
At the end of the day we individual Singaporean are making an individual choice. The future that we want is in our own hand. I can only present what I understand from my own perspective, to minimise misunderstanding or hatred, if any. No government is so stupid to make a policy to want to make citizen angry. A government who dare to make a difficult decision which for sure know people will throw stone at them, and probably be voted out, is to me a good government with courage and care a lot for her people.