Quarterly Literary Review Singapore
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Vol. 2 No. 2 Jan 2003

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On a very taxing situation

By Toh Hsien Min

Important Notice: As all Singaporeans know, as of 1 Jan 2003, Goods and Services Tax in Singapore has been increased from 3% to 4%. The management and staff of QLRS is proud to announce that we will be absorbing the GST increase directly associated with the consumption of QLRS. This is in line with our vision to make the arts affordable and accessible for everybody.


In principle, it's not easy to argue against Goods and Services Tax, or what is elsewhere known as Value-Added Tax. Classical economics espouses that deferring consumption today generally allows you to consume more in the future, and this works not only on a macro level but also on an individual level. In both cases, it is the upbuild of available capital that enables a country or an individual to increase productive capacity by multiples. The converse is true: one could, for example, have predicted the current economic trough the USA is going through by remarking the high negative savings rate that came to a head in 2000.

However, GST also needs to be thoughtfully implemented so as to only dis-incentivise consumption without any undesired impacts. The tax offsets announced by the government are positioned as aiming to do so. But do they?

Take the hypothetical case of two individuals, one of whom is a 55-year-old with an annual income of $6,000 and the other a 40-year-old professional with an annual income of $600,000. The former will not be liable for any income tax, while the latter would have to pay a hefty whack in income tax; the former would probably be spending 90-100% of his income as daily expenditure, while the latter would probably be spending no more than 40-50% of his income. Assuming an even spread of GST liability in expenditure (even if one has to go through the more circuitous route of the passing on of costs by non-GST-registered businesses), the former would wind up paying a higher proportion of his income on GST. At the same time, income tax reductions would not benefit him though it could save the richer man a significant tax burden.

That's where the Economic Restructuring Shares (ERS) are meant to come into play; every Singaporean is entitled to varying credits into his or her CPF to offset such undesirable impacts. Again, it is in theory laudable; but in practice, the catch is that one has to have topped up one's CPF account by $50 by 31 Dec 2002 in order to receive the ERS. However, 128,000 Singaporeans failed to meet the deadline, and all available evidence points to these people being unemployed persons, retirees, the less-educated - who may not understand the scheme - and those who cannot even squeeze $50 from their income to gain the larger benefit. In other words, these Singaporeans would face the fullest impact of a shift from income to consumption taxes without enjoying the reliefs.

At the same time, I have heard stories of lawyers who are offered $500 by their law firms as a staff benefit to offset the GST increases. (Imagine that - such an offset means that the law firm assumes that its lawyers would be spending $50,000 in GST-liable consumption for the year alone.) In addition to income tax reliefs and some ERS, the better off can possibly be made even better off through the new tax regime. Even though the true results will require some time yet to assess, this new tax structure shows all the signs of potentially being a regressive tax regime. Our only consolation is that it won't come anywhere close to Dubya's.

I may be fortunate (and unfortunate) enough to belong in the middle rather than to either extreme, but I do hope our economically-savvy government will also consider its "kinder, gentler" pledge when implementing GST increases.


Against all odds we've managed to put this up three days earlier than our 15 Jan 2003 deadline; I must thank all our dedicated editorial staff for this, one of whom, I know, was up until almost 3am this weekend to finish up. All this is because I'm due to report for reservist duties on 13 Jan. There's an interview with Koh Buck Song, editor of From Boys to Men: A Literary Anthology of National Service in Singapore in this issue that I could mention, and a moral-philosophical argument against national service that I shall not; but since we're on the issue of tax, I would like to mention that Singaporean males are paying heftily, in what amounts to another form of regressive tax, for the privilege of doing national service.

Think about it: two-and-a-half years of your productive life, added to the accretive impacts of lagging behind your peers by such a period throughout your career, added to other circumstantial impacts (e.g. medical costs, and, for me, significantly, the fall of the Singapore dollar against pound sterling) and qualitative impacts (e.g. contingency planning throughout one's working life). A couple of years ago, when I was building financial models as part of my job, I calculated what the opportunity cost was to me of doing national service, less the allowances and laughable tax reliefs that I would receive. The result was a staggering six-figure sum. In other words, if I had not been compelled to do national service, I would have been that much better off today.

Assuming the average NS-liable male citizen has an opportunity cost of $50,000, and assuming the average NS intake to be about 25,000 (the actual figure, of course, fluctuates), Singapore males are subsidising the state defence budget to the tune of $1.25 billion every year. Who are the main beneficiaries of the $1.25 billion? Given the government line, that a high level of national security attracts foreign investments, isn't one answer foreign corporations, who are thereby able to reduce their business costs in terms of insurance, risk management, etc.? We are told, of course, that this ultimately benefits NSmen and their families, through capital upbuild and job creation. This is to some extent admissible, but it should be observed that the benefit does not return 100% to the NSmen; instead, it is shared out and enjoyed by local and foreign corporations, work permit holders, first-generation Singapore PRs, women, and others, who do not have similar liabilities. In other words, national service is also another form of regressively redistributive tax.


This issue of QLRS (which isn't and will remain not government-sponsored) has turned out a little better than I'd been dreading. Our deadlines had actually disqualified some articles, such as reviews of two outplaced books, but we've had some luck in other areas. There is a good crop of poetry from some new talents, who have the potential to be taking a larger part in Singapore's life of letters in the near future. I must thank especially Alvin Pang for arranging some material from the International Writing Program in the University of Iowa. And of course we've had the dependable regulars coming through with good articles. Even if, because of the deadline, this issue has been a little more taxing on me than most, I hope you'll enjoy it.

Good or Sucky Tax? Discuss in the Forum.

QLRS Vol. 2 No. 2 Jan 2003


About Toh Hsien Min
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  Related Links

Overview of Singapore tax system
External link to the Inland Revenue Authority of Singapore.

GST in brief
External link.

Economic Restructuring Shares
External link to the CPF Board.

Bush's tax cut
External link to Time.

National Service
External link.

Interview with Koh Buck Song


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