Singapore Taxation Report: Evaluating GST in Singapore (LAW2465)

This report provides a comprehensive analysis of the Goods and Services Tax (GST) in Singapore, examining its fundamental principles, purpose, and recent developments. It delves into the structure of GST, differentiating between taxable and non-taxable supplies, and explores the rationale behind its implementation, including its role in revenue generation and promoting economic competitiveness. The report assesses the portion of GST revenue in Singapore, highlighting its contribution to government funding and the evolution of GST rates over time. It discusses the positive aspects and criticisms of GST, along with potential alternatives and the implications of abolishing the tax. Furthermore, the report addresses the proposed increase in GST rates and its implications for the Singaporean economy. It emphasizes the GST's contribution to the government's revenue and its impact on various sectors. The report concludes with recommendations based on the findings.

Running head: SINGAPORE TAXATION
Singapore Taxation
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction..................................................................................................................................2
Fundamentals of GST in Singapore.............................................................................................2
Purpose of the implementation of the GST regime in Singapore................................................4
Portion of the GST revenue in Singapore....................................................................................5
Recent Developments in GST in Singapore................................................................................6
Positive Aspects of GST in Singapore.........................................................................................8
Criticism against GST in Singapore.............................................................................................9
Abolishment or Scrapping of GST.............................................................................................10
Substitutes to GST.....................................................................................................................12
Conclusion and Recommendations............................................................................................13
Bibliography...............................................................................................................................15

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Introduction
In a similar manner to majority of the countries in the world, the tax system of Singapore
mainly consists of two types of tax systems. These include the Individual Income Tax and the
Corporate Income Tax. Any income which is earned both inside and outside the country is taxed
in the hands of the residents of the country. In the present day, the tax system of the country can
be defined as a progressive tax system where the tax rates vary between both 0% and 22% with
regards to a majority of the individuals. While the assessment year commences from 1 January, it
ends on 31st December of the calendar year. As a part of the taxes collected by the government,
there are a wide range of sub-taxes which are charged as a corporate tax in the hands of the
individuals. One of them is the Goods and Service Tax (GST). In some other countries, GST is
also known as the Value-Added Tax or VAT. While this tax has been successful in generating
the revenues for the government since its introduction, there are some trends where it still needs
to develop at a faster rate. These include the taxation of the digital economy and the development
of newer technology-based GST tax reporting obligations.
Fundamentals of GST in Singapore
According to the Inland Revenue Authority of Singapore (IRAS), GST is defined as a
broad-based consumption tax. A broad-based consumption tax is one which minimises the
number of tax preferences available to an individual and tries to maximise the government’s
revenue at a single rate of taxation. The GST in Singapore is levied on both imports made into
the country and the supply of goods and services within the country as well. However, these
taxes are not levied on every type of the transfer or sale of goods. These are further classified
into taxable supplies and non-taxable supplies. The taxable supplies are further divided into
standard-rate supplies and Zero-rated supplies. The Non-taxable supplies on the other hand are

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divided into exempt-supplies and out-of-scope supplies. The standard-rated supplies include
most of the common sales like the sale of a TV set in a retail store in Singapore. A zero-rated
supply is one where the sale is made to or shipped to a customer who resides overseas. One of
the examples of an exempt supply includes the sale of an unfurnished rental property or the sale
of land. Out-of –scope transactions are also similar to the zero-rated sales in the manner that
there is zero percent tax levied on them. However, unlike zero-rated products, these products are
not covered under the scope of GST and no tax is computed on the sale of these products.
Some of the services which are covered under the standard-rated services include services
such as providing a spa service to a customer in Singapore. Services which are classified as
international services are covered under the zero-rated services provided by an individual.
Exempt services that are exempt from the hands of an individual include the issue of a debt
security and the exchange of a Bitcoin for a flat currency. GST exemptions are available with
regards to a majority of the financial services, supplying digital payment tokens, lease and sale of
residential properties and the local supply of metals which are investment precious.
The requirements of GST suggest that any business whose total taxable turnover in a
given financial year exceeds $1 million should register itself for the GST taxation purposes.
Even if the turnover does not exceed $1 million may choose to register itself voluntarily for the
purposes of GST. The chargeability of GST follows the principle of charging the tax on a net
basis. The GST which is payable on the sale of the goods and services is known as the output
tax. The tax which is on the other hand, payable on the purchase of goods and services taken by
an individual is known as the Input tax. The Input tax is allowed as a deduction from the Output
tax and the net amount is to be paid as a tax to the government by the individuals. The IRAS
collects these taxes on behalf of the government.

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In order to avail the tax credit made available by the government, there are a few
regulations which need to be followed by the taxpayers. The GST return should be supplied by
the taxpayer within one month after the end of the taxation period. The GST return submitted
should contain details of both the output tax and input tax to be paid by the individual. Any net
amount is to be either paid by the individual as their tax or is to be refunded to them to them by
the government. When compared to the other countries in Asia-Pacific, the rates of GST charged
in Singapore can be termed as moderate. The highest rates of taxes are charged in China with an
annual rate of 17% which is followed by New Zealand which charges a tax of 15% and the
Philippines with an annual tax of 12 percent. The rate of GST charged within the country over
the years has been increasing on a consistent basis. The rate charged by the government was 3%
at the time of introduction. This rate increased to 4% in 2003, 5% in the year 2004 and to 7% in
the year 2007. A recent proposal was made to change the rate of GST charged in the country.
Purpose of the implementation of the GST regime in Singapore
When GST was introduced in Singapore on 1 April 1994, the main purpose of the
government was to reduce the dependence on the direct expenses and become more dependent
on the indirect taxes. It also allows the government to sustain a consistently low income tax rate.
As the GST is mainly charged on the basis of the consumption made by the customers and not on
their income, it inherently encourages the consumers to save and invest rather than be involved
in the consumption of the products available. At the time of introduction of the tax, the main
reason which was suggested at the time by the government was to increase the competitiveness
prevalent in the country. The slogan which was adopted was “A Fairer Tax, a Brighter Future”.
This was quoted by Glenn P. Jenkins and Rup Khadka. The GST regulations at that time were
prepared by many high profile politicians in the country and the government clearly stated at that

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time that the purpose of introducing the tax was not to raise money. Any problems which
occurred as a part of the implementation and post-implementation of the GST in the country
were to be were to be solved by the leaders. The Causeway Customs check points were also set
up to observe the manner in which GST functioned on the first day of its establishment.
Portion of the GST revenue in Singapore
At the time of introduction of the GST in Singapore, it was estimated that the GST would
generate a revenue of SGD 960 million for the country. However, the total revenue which was
generated for the country was as high as SGD 1523 million. This revenue went on to increase
further to SGD 1623 million in the year 1995-96. In the period beginning from 1960 to 2013, the
correlation between the GDP growth and implementation of GST showed a positive relation
between both aspects with regards to Singapore. The GDP in Singapore increased by more than
17.98% during the period of implementation of the GST within the country. According to the
IRAS, the total revenue collected total revenues of $52.4 billion as a part of the tax revenue for
the Financial Year (FY) 2018-19. This was an increase in the revenue by 4.4% from the previous
year during which the tax collected by the government. For the particular Financial Year, this
totals to be 71.1% of the revenue of the government and around 10.6% of the Gross Domestic
Product of the country. The tax revenue collected by the government is useful in supporting the
funding of key Government programmes of the government. The total income taxes collected by
the country in the form of individual income tax, corporate income tax and withholding tax
totalled to be 56% of the income tax collected by the government. The total direct taxes of the
government for the particular financial year totalled at $29.4 billion, which was 7.9% higher than
the taxes collected by the government in the previous financial year. The tax collection costs of
the government was also extremely low at 0.80 cents charged for every dollar of tax collected by

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the government. Due to the increase in the private consumption expenditure in 2018-19, the total
taxes collected in the form of GST increased marginally by 1.6% to $11.1 billion. When
calculated, this totalled to be around 21% of the total taxes collected from the country during the
tax year. The contribution of the GST to the taxes collected by the government has been steadily
increasing over the years. In the year 2009, the taxes collected from the GST was comparatively
low at $6.91 billion. However, this has continued to increase ever since and has almost doubled
in a span of 10 years. At this rate, if the level of spending in the country continues to remain the
same, it can be expected that the taxes received by the government may go as high as $15 billion
in a span of 3 years. The fiscal spending of Singapore in FY 2020 was prepared on the basis of
prioritising defence, health and education amongst others. In order to curb the outbreak of the
coronavirus, the government also pledged revenues worth $4.6 billion. This necessitates the
increase in the revenues generated by the entity from its activities. Abolishing the GST at this
point of time would result in a loss of revenue of more than $12 billion of which a majority of
the revenue is generated from collections provided by foreigners.
As per the FY 2016, the highest contribution of the GST by the sector was highest for the
wholesale and retail sector which was followed by the Financial & Insurance Activities of the
organisations. The least contribution towards of the GST in the country was done by the
manufacturing sector for this period.
Recent Developments in GST in Singapore
In the Financial Year 2018-19, the government of Singapore announced a plan to hike the
existing GST rates from 7 percent to 9 percent. This was planned to be carried forward at some
point from 2021 to 2025. The reasons cited for this increase were a recent surge of the spending
of the government expenditure on healthcare, security and infrastructure. The implementation of

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the tax would, however be dependent on some additional factors. These include the state of the
Singaporean economy, the rate at which the expenditures of the country grow and the
sustainability of the tax rates existing in the country at that point of time. The reasons cited for
the specific increase in the tax was the existing gap in the revenues earned by the government
and the future expected expenditures to be incurred as a part of the business. The increase in the
GST rates by 2 points would provide the government with a revenue of almost 0.7 percent of the
GDP of Singapore for a particular financial year.
In the recent years, the policies of the government suggest that it views the GST as an
important means of generating revenue necessary for the activities undertaken by it. There have
been reports about a plan in the hike of the taxes charged by the government in the foreseeable
future. There are also no plans to either drop it or to delay it any further. The deputy prime
minister of the country suggests that as every person in Singapore is likely to benefit from it,
they should play a part in contributing the taxes. However, at the same time, the government also
announced the $6 billion Assurance Package and permanent GST voucher scheme to ensure that
the lower income households will not face the burden of paying heavy taxes like the well-off
households.
According to this package, the government of Singapore set apart an amount of $6 billion
as a cushion to the impact caused by the increase in the GST on the customers. This Assurance
package announced in February 2020 ensures that every adult Singaporean will receive cash
payouts varying between $700 and $1600 over a period of five years. This will make sure that
the households are able to meet the five year’s additional expenses worth caused due to the
increase in the tax expenses of the country. People living in much smaller households would
receive around 10 years of cover for the additional GST expenses which need to be paid by them.

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Recent issues faced by the country like the outbreak of coronavirus and the environmental issues
make it necessary for the government to generate sufficient fiscal balance to ensure the welfare
of the country. Other steps which are being taken by the government include the absorption of
GST in areas like publicly subsidised healthcare and education and the enhancement of the above
mentioned GST voucher scheme after the increase in the taxes charged by the government.
These steps are a part of the initiatives taken by the government to continue in keeping the tax
system progressive and ease the burden on the households with no elderly members.
The policies of the government clearly suggest that they consider GST to be an important
part of the revenue generated by them and the wealth and income taxes would be adjusted
accordingly to meet the revenue demands of the government. One of the chief reasons cited for
this constant increase in the taxes is the shift in the expenditure on public health. In the year
2000, the total expenditure of the country was around 0.7% of the GDP spent by the country.
However, this increased by 3 times and became 2.1% of the country’s GDP in the year 2015.
While it is evident that the government is trying to increase the revenues generated by it, there
has been some criticism about the increase in taxes and the announcement of the assurance
package to nullify the impact. The reason behind this is the fact that most of the GST expenditure
in Singapore is borne by the foreign individuals and higher-earning individuals. As the net
revenue generated by the taxes will increase without causing any problem to the lower income
people, the announcement of the package is justified. Hence, the government tries to keep the tax
as a progressive tax and generate high amounts of revenue at the same time.
Positive Aspects of GST in Singapore
From a technical point of view, the main purpose of the implementation of GST is to
avoid the cascading effects of taxes on both the production and distribution of goods and services

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in the country. As GST is an indirect tax, it tends to achieve the objective of simplifying the tax
rates and avoid the burden of increased prices on the final consumer themselves. It also allows
the levy of taxes on goods which are considered not to be beneficial for the economy. The most
important aspect of GST in Singapore is that it increases the level of competitiveness in the
economy as the increment in GST rates is directly related to the reduction in the direct tax rates
prevalent in the country. An increase in the foreign direct investment within the country results
in the increase in the employment opportunities of the country and benefits the country as a
whole. An increase in the level of high paid jobs across the country will result in the increase in
the living standards across the country. The increase in inflows will improve the high levels of
foreign reserves which are currently present in Singapore. The main purpose of these reserves is
that they act as a measure of protection against any uncertainties faced by the country. In terms
of economic uncertainties facing the country, these assets can be used in reviving the situation
prevalent in the country. The reserves can also be used as a part of investments made in the
financial instruments and build up the long term future of the country. Other benefits include the
growth brought by the GST to the GDP reported by the country over the years. It allows the
flexibility of keeping a low amount of taxes in other regards and also not charge high amounts of
taxes from the low income population of the country. The single rate tax system of Singapore is
considered as a model for many other countries like India which has looked to implement GST in
the recent years as a part of its regime. The contribution made by the GST to the government to
the government revenues in the recent years has also been consistently increasing.
Criticism against GST in Singapore
One of the main criticisms which exists against the GST in Singapore is that it collects
more taxes from people with a lower level of income than those who are earning more income.

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This changes its very nature of being a progressive tax and rather portrays it as a regressive tax in
economic terms. This is because the average rate of tax paid by an individual tends to decrease
with the increase in the income earned by them in a given income year. If the prices of the goods
become more inelastic, then the regressive effect of the tax which is to be faced by the
consumers becomes extremely high. Hence, if the prices do not change very easily, then the
taxes which are to be paid by the final consumer become a burden and makes the GST
unattractive. Some of the parties who have benefitted from this tax are the retailers who tend to
keep a very high price of the products and tend to treat them unfairly. Its impact on the
individuals earning a fixed income is also significant. As the GST charged in Singapore is
inflationary in nature, these people either have to put a limit to their savings or reduce the goods
and services procured by them from the businesses. When it was first implemented by Singapore
in the year 1994-95, the tax rate was as low as 3 percent. This rate went to increase gradually
after that year of the implementation. However, as suggested by many of the economists, it
should be kept in mind that the impact of GST is not solely responsible for the inflation caused in
an economy. The purchasing power of the prevailing population also plays a role in this regard.
Researchers suggest that in Singapore, the compliance costs of the tax are lower with an increase
in the turnover of the business. However, as the turnover increases, it has been found that the
overall compliance costs of the businesses comes significantly down. This suggests that the tax is
more of a burden for smaller entities with lower turnover and cannot be rightly considered as a
means for increasing the competitiveness in the long run of the business. The previous increase
in the GST of the country was from 5 percent to the current rate of 7 percent in the year 2007.

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Abolishment or Scrapping of GST
In the current scenario faced by a majority of the countries, framing a completely new tax
system which collects sufficient revenues to fund the fiscal expenditure is not a viable option in
the short run. This is because of the urgency of the necessity of funds for the government to fund
their development programs. Due to the globalised nature of the modern world, it becomes
difficult for the governments to solely depend on the circumstances existing in the country to
determine the rate of taxes to be charged by them. The revenues earned by the government also
depend on the taxation rules applicable in the foreign countries and on an international level as
well. One of the modern day taxes which is likely to be implemented by a majority of the
countries in the world in the future is the Base Erosion and Profit Shifting Tax. Under this tax,
the governments of all the countries worldwide are likely to charge more taxes from the entities
operating worldwide from a particular base foreign country. These rules are mainly beneficial for
the countries in which the customers purchasing the products are located. Hence, hub economies
such as Singapore which mostly depend on the corporate tax revenues are likely to be negatively
impacted by the tax changes occurring on a worldwide basis. Hence, as the flexibility of the
modern day enterprises continues to increase at a healthy pace, the reliability of the revenues
generated from the corporate taxes charged by the governments reduces. This necessitates the
dependence of the government on increasing the revenues generated from the taxes which are
within their control in the short run. Many of the countries in Europe, specifically the Nordic
countries tend to charge a high amount of GST and income tax to fund their spending activities.
This is because they realise the fact that the higher spending of the government can only be
reliably funded with the help of stable revenues generated from within the country. The