This is a guest post contributed by Jasmine.
We all know it… the feeling when you look at the dinner bill or the receipt of your purchases and you see that amount beside these three little letters G, S and T.
And that 7% is going to be hiked up to 9% soon.
But not for another year, at least.
Although the GST in Singapore at 7% is nowhere near the highest in the world (Finland 24%, France 20%, Italy 22%), no percentage is too low when it comes to having to pay GST – right? See, I know you! ?
But have you ever stopped to wonder WHY ON EARTH does Singapore implement GST?
Background
A long long time ago during your ah kong and ah pa’s time, Singapore’s corporate income tax rate and personal income tax rate was very high (both 40%!).
Here’s some numbers for you to play around with:
If you earn a monthly salary of $3,000, you’ll have to pay $1,200 in taxes to IRAS every month.
In order to make Singapore more attractive to investors and to help sustain economic growth, the decision was made to shift from direct to indirect taxes.
Aka the Goods and Services Tax (GST).
Here, you can read more in the article we wrote before.
10 Facts About GST in S’pore Other Than The Fact That It’s Going to Increase Soon
After thinking for six hundred and forty-six years (okay, I’m kidding, it wasn’t that long. It’s longer.), they decided to go with the Goods and Services Tax.
Why? Because of these three reasons:
Easy to calculate and implement
GST as a percentage of the price of goods and services is a one-size-fits-all solution.
The same percentage can be applied across the board.
This reduces any inefficiencies in having to calculate different tiers of taxes, unlike personal and corporate income tax where different income levels and profit levels are tagged to varying percentages.
GST is 7%. SUA!
Simple, efficient, ruthless, Singapore.
Easy To Enforce Also
GST is easy to enforce, all merchants and service providers need to include GST into their quoted prices (except F&B where it is calculated at the end because of the additional 10% service charge).
Don’t have sly rich people under-declaring income la like chicken rice uncle saying that he only sells 10 plates an hour when he really sells 100 plates an hour.
Have two properties? Some people decouple to avoid paying ABSD, depriving the Government of additional revenue that could have gone to social transfer for the lower income.
Corporations can also siam corporate tax by donating to charities and a series of rebates etc.
But GST… GST CANNOT SIAM ONE! As long as you buy anything, you’ll need to pay GST.
It’s Super Fair
GST is a damn fair tax. The more you buy, the more you pay.
In this manner, the rich are almost always taxed more (unless the rich bugger damn giam (miserly) and never spend – then good lor, he deserves his savings OR the poor bugger spend a lot living like he is rich – then too bad, he needs to wake up his idea and spend within his means.)
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The more one can and chooses to spend, the more one is taxed.
And with the permanent GST-Voucher scheme that gives back to lower-income households more than what they shell out in GST, this system helps in making sure social transfers reach the lower-income groups.
In other words, this ensures that the rich don’t get richer (if they spend more) and the poor don’t get poorer (if they spend less.)
Now you get it?
So now, do you understand why it’s one of the best broad-based taxes to roll out in Singapore compared with other taxes?