01 March 2012

Budget 2012 — Concerns About Rising GST Voucher Expectations

Now that the GST Voucher scheme will be made permanent, some people — tax consultants, economists and academics, all of whom who are probably upper- and middle-income individuals — have expressed concerns that the GST Voucher recipients will expect more ("GST Voucher Seen as Better Than Exemption", The Business Times 28 February 2012).

The GST rate was increased in three steps from 3 per cent in 2003 to 7 per cent in 2007.
The rationale for introducing GST is to shift some of the tax burden from personal income tax to indirect tax, or GST.

Over the past decade, personal income tax rates have been reduced.  For instance, the personal income tax of an individual would have fallen from $7,600 in YA2004 to $5,650 in YA2012 if his chargeable income was $100,000, and from $24,200 to $20,750 if his chargeable income was $200,000.  The top marginal tax rate on chargeable income exceeding $320,000 is only 20 per cent.

In addition, approved interest income, distributions from REITs, and repatriated offshore income have been made exempt.  These reductions and exemptions — which benefit the upper- and middle-income mostly — are, for all intents and purposes, as permanent as can be.

The low-income and no-income individuals do not benefit from such tax reductions and exemptions but they have to suffer the higher GST rates.  They receive some relief in the form of GST offsets.

The Government has decided to make the GST Voucher a permanent feature, with effect from Budget 2012.

One may ask why it has taken the Government so long to make the GST Voucher a permanent feature.

But will making the GST Voucher permanent lead to recipients expecting more and more in the future?

The Government has already allowed for an increase in GST Voucher outlays in the next four years.  This year's outlay is $0.68 billion while the total for the next four years is $2.95 billion.  Part of this has to do with inflation.

The Government may also need to address the situation of individuals and families — mainly retirees living in older private homes — who fall between the cracks.

What about the expectations of the upper- and middle-income individuals?

Some lament that there was little for middle-income individuals in Budget 2012.  They forget that personal income tax rates were reduced last year, and these reductions are still available for them to enjoy.

Every January, we read of tax consultants and others hoping for personal income tax reductions because, they say, the reductions are necessary for maintaining Singapore's competitiveness.  These highly paid professionals will benefit from any such measures.

Some tax consultants and economists even suggest switching to current-year taxation for a variety of apparently well-intentioned reasons, but one obvious outcome which is hardly mentioned is that the Government will not collect two rounds of income tax in a single year (one year in arrears and another for the current year) and consequently will forgive one year of personal income tax, resulting in an unimaginable super windfall for upper- and middle-income individuals.

So, on the one hand upper- and middle-income individuals wish for more tax cuts and more tax exemptions, but on the other hand they are concerned that low-income and no-income individuals may similarly wish for more generous assistance.

Perhaps, they have forgotten that the State has the obligation to help the disadvantaged.

Perhaps, they have forgotten that the State has the right to tax their income because it is the State that has made it possible for them to earn the income by providing them with the infrastructure and the opportunity.  They are fortunate that the Government seems intent on lowering personal income taxes, but the race to the bottom has to stop because our personal income tax rates are absurdly low.  It is time that more Members of Parliament join Denise Phua in calling for the wealthy to pay more personal income tax.

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