SINGAPORE - The debate on relying on the goods and services tax (GST) hike versus counting on other mechanisms to generate revenue misses the point, said Finance Minister Lawrence Wong during a post-Budget roundtable organised by The Straits Times and The Business Times on Monday (March 14).
The GST increase needs to be considered together with other options, he added, as spending needs go up and the funding gap increases.
The minister said the GST hike alone does not yield enough revenue for the Government to address that funding gap.
During the discussion, which was moderated by Straits Times associate editor Vikram Khanna, Mr Wong also elaborated on why certain other methods to generate revenue were not chosen - such as increasing personal income tax, corporate tax or introducing estate tax.
In his Budget speech on Feb 18, Mr Wong had announced that the planned goods and services tax hike would be delayed, and the rate would be increased by one percentage point each year in 2023 and 2024.
When asked on Monday if the Finance Ministry had considered alternative measures, Mr Wong said: "It's certainly a question I've had to deal with a lot after the Budget, and I've consistently told everyone, we've considered all of these alternatives."
He noted that current expenditure is about 18 per cent of gross domestic product (GDP), and is expected to increase to 20 per cent of GDP or more by 2030.
While 2 per cent of GDP may sound like a small figure, it is about $10 billion in absolute numbers using current GDP figures, he said, adding that the GST rate increase will yield only about $3.5 billion a year.
If instead of the GST rate increase, the task of generating more revenue was placed on personal or corporate income tax, "it would be unbearable", said Mr Wong.
It would also have a huge impact on Singapore's overall competitiveness. In addition, increasing personal income taxes would mean the middle- or upper middle-income groups would have to pay more as a small group of top earners are unlikely to bear the entire load, he said.
Another common objection to the GST increase - that it will hurt the poor - is also not valid because of the enhanced GST Voucher scheme which will effectively neutralise the impact of the tax increase on low-income groups, said Mr Wong.
When asked by Mr Khanna if the threshold at which GST can be charged by companies could be lowered to broaden the tax base, Mr Wong said it was a judgment call to balance between revenue needs and compliance costs, especially for smaller businesses.
Singapore's threshold is currently at an annual turnover of $1 million, while some other countries have set a lower bar. For example, in Malaysia, it is at RM500,000 (S$163,000).
Mr Wong added: "With all the changes that are happening already - the cost increases, the impact of supply chains, the cost of raw materials - smaller businesses are the ones that are hurting the most. So if we were to impose this on them, they would be the ones to suffer."
Fellow round-table panellist Ng Chee Meng, secretary-general of the National Trades Union Congress, added that apart from the collection of taxes, it is important to remember the distribution of the tax dollars. The monies go to areas such as eldercare and education, which contribute to building an inclusive society, he said.
Mr Wong agreed, saying that Singapore pays attention to both fronts: taxation, in a fair and effective way, and expenditure, in ensuring good value for money outcomes and that those with greater needs get more.
"So when you add the two together, we, in fact, have a highly progressive system of taxes and transfers compared to most other countries," he said.
The panellists, which also included UOB head of research Suan Teck Kin and National University of Singapore economics, finance and real estate professor Sumit Agarwal, also discussed the tax rates of other countries.
For example, in the United Kingdom, the maximum personal income tax rate is 45 per cent, while its standard tax on goods and services is 20 per cent. In many Organisation for Economic Cooperation and Development (OECD) countries, the value-added tax (VAT) rates are in the double digits, such as Japan's 10 per cent.
In response, Mr Wong said: "So we really should be asking ourselves, why would Singapore be so special? And these countries also have very high income tax rates, easily way above 30 per cent for the middle income. We're not talking about the top tier.
"So why would we somehow think that Singapore would be so different?"
On the topic of estate duties, Mr Wong said Singapore's experience was that a disproportionate part of the burden was borne by the middle- and upper middle-income groups, whereas the very top end could tax plan estate duties away.
This poses a similar challenge as a net wealth tax, which has been suggested as an alternative method for revenue generation.
There is no solution in sight yet to address this challenge, said Mr Wong.
He added: "We continue to study, we continue to review and look at the experiences of other jurisdictions. We also do not rule out that perhaps international rules may evolve around this, just as they have on corporate taxes."
Mr Khanna also asked about property taxes, another key measure from the Budget, noting that while the increase in property tax would bring in significant revenue, it may not tame the property market because the super rich would not be deterred.
"So property prices may continue to rise. And if that happens, the wealth inequalities will continue to widen," said Mr Khanna.
In response, Mr Wong said the property tax regime is not meant to cool the property market, as there are other tools for that, including moves such as higher Additional Buyer's Stamp Duty rates that were announced in December 2021.
With regard to dealing with wealth inequality, "ideally, we would like to tax wealth directly in the form of a net wealth tax", he said.
"But that is, in practice, very hard to implement, which is why many OECD countries have also dropped the idea of a net wealth tax."
The ministry will continue to review and study this, Mr Wong added.
