The GST Voucher is a powerful policy tool

Hand and money staircase isolated on white

It is GST voucher season yet again in Singapore. Soon, a total of 1.7m Singaporeans will receive notifications on their 2019 GST Voucher benefits and MediSave top-ups. 

About 1.4m eligible citizens will receive up to S$300 in GSTV (cash) in August. The value of these cash payments will amount to S$410m in total.

The GST Voucher is a permanent scheme that provides targetted relief, or welfare, to the lower income groups without hurting them. It is a precision instrument, and a very smart one. 

The primitive way to provide relief  (and one of the more popular ones in politics), is to eradicate GST altogether. The narrative says everyone needs food, transport, medicine…well, necessities generally. So why do we want to impose taxes on these things?

Lowering GST and taxes is a popular political narrative

Consider this question: is a mobile phone a necessity? Or if it was, then is a smart phone a necessity? Is Japanese short-grain rice a necessity? Is Royal Umbrella rice a necessity? Or Knife brand oil a necessity? 

The very first daunting, and hugely unnecessary task is to draw the line at which brands and products are considered a necessity. Very rich people use these same products, but they buy them more frequently and in larger numbers. They’ll be enjoying the GST relief, in the same manner the lower-income do. 

With the GST-Voucher, the ones who can afford it will pay tax. The lower-income will get relief in the form of the vouchers and in cash. Whatever they spend on GST, they get back in cash. This is a more powerful mechanism than simply (or lazily?) not taxing.

Each year, for the last seven years, whenever the government announces the distribution of GST Vouchers, the crowds starts to cry “election coming loh“ or raise the catch phrase “GST-V is one time, but GST is forever”.

That is sloppy thinking and weak reasoning.

People actually get help, targetted help in fact. If this was a political, pork barrel mechanism…it is far, far more easier to write off the GST altogether.

GSTV is a permanent scheme introduced since 2012. It is an annual exercise to help lower and middle-income Singaporeans offset some of their GST expenses. The GST and GSTV are tools for social transfer and redistribution thru consumption tax.

To close, this is an example of GST-V in action:

Taking for example a couple who lives in a 3 rm flat. They would be receiving $1900 ($1,400 in cash, $380 in U-Save, $120 S&CC Rebate) of vouchers in total.

$1,900 worth of GST-V points to $27,000 of their expenses being tax-free. If this couple were to manage their annual expenses and live within $27,000, they would pay no tax -at all-. Because this income is not taxable.

Now even if they spent every single cent of their take-home pay (some $38,400), they would be paying $2,688 ($38,400 x 0.07) worth of GST. The $1900 GST-V is essentially a tax rebate of 70% to them.

This is a far more valuable, and intelligent tool to help people in need…funded by the better off. 

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