A tiered goods and services tax (GST) that imposes higher rates on luxury items than on daily necessities would be a less efficient way to help the lower income, compared with Singapore's current approach, Finance Minister Heng Swee Keat told Parliament yesterday.
Such a multi-rate tax would be difficult to implement, and the costs of enforcing such a tax regime would ultimately be passed on to consumers, he added, rejecting calls made by MPs in recent years and in this year's Budget debate to implement a tiered regime based on what poorer Singaporeans spend on.
Instead, the Government prefers a flat GST rate while providing structural offsets through GST vouchers, with more offsets going to help lower-income households and seniors. This is on top of other schemes and programmes to help those less well-off, he said.
Some MPs, such as Mr Saktiandi Supaat (Bishan-Toa Payoh GRC), felt the multi-rate GST could help make the tax system more progressive.
Fine-dining services, said Mr Saktiandi, could be given a 10 per cent GST, while necessities like rice could be taxed at a lower 3 per cent.
But Mr Heng, in his speech responding to 55 MPs over three days of debates, noted that it is difficult to define what qualifies as a necessity. "Take bread, for example. There are the white and wholemeal loaves that you can find at supermarkets, but there are also loaves sold at artisan bakeries. On top of that, there are so many other types of bread - floss buns, baguettes, kaya toast at your coffee shop.
"Where do we draw the line?"
Better-off households also tend to spend more in absolute terms and would therefore reap more benefits from reduced GST rates, he said. "The experience of many countries and relevant studies also show that a multi-rate GST system raises businesses' compliance and administrative costs significantly, which are then passed on to consumers."
Mr Yee Chia Hsing (Chua Chu Kang GRC), Ms Jessica Tan (East Coast GRC) and Mr Lim Biow Chuan (Mountbatten) had also asked for the criteria for these schemes to be reviewed in order to benefit poorer Singaporeans.
Mr Heng said the Government regularly reviews eligibility criteria to ensure intended groups benefit. "No criterion is perfect, but if we put all our different schemes together, we have a system that is progressive and, as Mr Yee said, fair."