Singapore Taxes : Part 3, abolish GST for bare neccessities

At Five Stars and A Moon, we are well in touch with the ground. We know that there are groups advocating the abolishment of GST for necessities.

They ask: “Why is GST imposed on bare necessities, don’t the rich eat the same as the poor?”

Let us first define “bare necessities”.

(No student has graduated without these necessities)

Lets take rice for an example. There are many types of rice. Basmati rice, Vietnamese Rice, Thai Rice, Sushi rice (or Koshihikari Rice, a premium rice from Japan) and even Organic rice. Which one should be the necessity?

The Thai Rice (most) Singaporeans consume is actually a premium rice, not at all a “necessity”.

(Rice is the bread of Asians)

Bureaucratic nightmare
A mobile phone is a necessity. So is a mattress. So is water, electricity and gas. To be able to classify, update and manage dispute of articles for tax exemption would mean IRAS setting up another department and system – this also means: someone needs to pay.

Many, many companies will want their products exempted from tax to boost sales. Tax free shampoo and conditioner anyone?

Maybe the Restroom Association of Singapore (Yes, such an organization does exist) will then want toilet cleaners, brushes and toilet paper also exempted from tax. Don’t you think GST on these products discourage “Good toilet behavior”. There will be no end to all the petitions.

Does the rich eat the same as the poor?

Even if we might eat the same amount (arguably), but how about the cost?

(the only thing fishy about this, is the price)
So if we decide to exempt fish from GST. This means the rich will save $85.68 (on this $1224 Sultan Fish) while the rest of us save a few cents from a $3.50 fish soup porridge.

GST Credits
Remember the GST Credits you received not too long ago? If you ran out and bought a shiny new iPhone, you’re probably not one of those that need help with taxes. This several hundred dollar cash handout by the Government is for Singaporeans to offset whatever they spend on GST, thus nullifying the tax altogether – specifically for expenditure on “basic necessities”.

In a nutshell,  if we were to exempt GST from “necessities”:

1. Less overall GST collected due to people exploiting loopholes etc.

2. Rich pay much, much, much less GST while poor saves little

3. Higher cost for collecting GST including setting up GST assessment centres for new products as well as mediation and arbitration courts for GST and enforcement centres.

4. More bureaucracy, administration and difficulty of starting and running a businesses
5. GST Credits are available to help the needy nullify their GST expenditure
Editor’s Notes:
– Income tax is a tax on your earning power. GST is a tax on your spending power, thus can be seen as a tax on the rich.
– Instead of inefficiently spending more to create a brand new bureaucracy, this Government has decided to just give real money in the form of GST Credits for Singaporeans, needy or otherwise.
– Unless your business makes more than S$1m a year, you do not need to charge GST
– But let us not forget WHY we have GST in the first place. This tax brought in $8b to the country last year: it helped pay to keep this country running, clean streets, functioning lights, security, defense and a peace of mind for you and me.
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  1. Thank you, good point about spending more to charge less. Also let’s not forget foreigners also pay GST, why should they not pay even if they eat little?

  2. I have been pretty interested in this blog – less anger and rhetoric than those in the other corners of the web.

    But whilst I feel that you guys have been doing a fairly good job, I don’t think the issue of a basic-item GST exemption has been adequately examined here.

    2. Rich pay much, much, much less GST while poor saves little

    It seems as if the logical cascade – based upon (earlier discussed) issues that have not been agreed upon – does not necessarily hold. GST remains a regressive form of taxation because the poor have a larger marginal propensity to spend. Reducing or lifting GST from necessities may disproportionately aid the poor.

    Also, it seems as if you are building a straw man by quoting the example of the fish. While you raise an important point on the seeming arbitariness of deciding what is necessary, the government does that with the CPI and its basket of necessary goods and services.

    The idea of a reduced/non-GST basket of essential goods and services is not impossible as you claim it to be. Yes, there are administrative difficulties, but I don’t think it should be written off as it has been.

    Still, keep up the good work guys. I understand the difficulty in being non-partisan in the climate (and some might accuse you guys of being overly pro-PAP), but it is crucial for a rational discussion space to be created.

    1. Thank you for the patient comment :) It is not in our agenda to defend -all- Government policies. There will always be two sides to a coin. We’d like to have a friendly debate with your comments – but do give us some time, we’re a small team and working/researching on new articles is priority for us at the moment!

  3. Dear Aaron,

    I do not see how that is building a strawman by quoting the example of the fish. The rich pay more in GST overall. Sure, the poor get taxed more as a % but they get back more as a % for the GST rebates as well. Essentially, if a lower income family paid less in GST, they get to keep the excess rebates.

    Similarly you said that the government does that with the CPI and its basket of necessary goods and services. A vehicle is part of the basket, so is it a necessity?

    And like it was mentioned, there is many goods of a certain type, there are different type of fish, there are different type of pork, there are wagyu beef and common beef.

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