28 August 2012

Raising Future Tax Revenue from Personal Income Tax not GST

Prime Minister Lee Hsien Loong said last Sunday (26 August 2012) that as spending on social services increases, taxes would have to go up sooner or later within the next 20 years.

When Channel News Asia interviewed some tax practitioners, their response was that there was scope for the Goods and Services Tax rate to be increased or some other tax e.g., carbon tax to be introduced.

Ernst & Young partner Kang Choon Pin, for instance, cited the case of Japan, which despite political opposition recently passed legislation to increase its consumption tax rate from 5 per cent currently to 8 per cent and subsequently to 10 per cent (he did not mention that the increase was conditional upon economic conditions).  Singapore's 7 per cent GST rate would then probably be the lowest GST or equivalent consumption tax rate in the world.  Many countries in Europe have consumption tax rates in the high 20 per cent.

Mr Kang is mistaken.  Many countries e.g., Malaysia and Hong Kong do not even have consumption tax.  So Singapore's 7 per cent GST rate will not be the lowest.

Mr Kang also ignored the fact that the top personal income tax rate (national, prefectural and municipal combined) in Japan is 50 per cent.  Singapore's top personal income tax rate is only an absurdly low 20 per cent.

Tax practitioners were silent about the possibility of the Government increasing personal tax rates.  Many of them too have been wishing loudly for lower personal income and corporate tax rates in almost every Budget.  This is not surprising.  Top income earners are affected much more by an increase in personal tax rates than an increase in the GST rate.

The Government should stop being so generous to the top income earners.

The Government should stop mollycoddling the top income earners, and stop being so afraid that hordes of them would desert our shores for more generous locations if personal income tax rates were to be raised.  Some might, if our top marginal personal income tax rate were raised to, for example, 50 per cent, but no one is suggesting or contemplating such high tax rate.

The practice of competitively lowering personal income tax rates should stop.

And when the time comes to raise tax revenues, personal income tax rates should be raised first.

The top income earners are under-taxed.


  1. This talk of tax increase is a distraction of the main cause of the problem, which is the government is now sucking the resources of the people dry via unaffordable housing costs so that the people 20 to 30 years from now are left with virtually nothing to take care of themselves during their old age. Solution to the problem is to reduce the cost of housing and other costs such as the cost of raising children. But collecting revenue is more important to this government so don't expect them to think along these lines.

  2. Since you quote JKG in your blog, I presume you understand what is "tax incidence"?