The real cost of GST

Published in Straits Times Online Forum on 10 January 2012

MY SINGAPOREAN friend who travels regularly to Hong Kong told me that he stopped buying many electrical products from Singapore as he can get them 20 per cent cheaper in the territory.

What accounts for this difference? Singapore imposes a goods and services tax (GST) of 7 per cent, but what about the difference of 13 per cent?

Although commercial rentals have been escalating in Singapore, they have always been high in Hong Kong.

I suspect that the real cost of GST is more than 7 per cent. There is the heavy compliance cost, especially for small businesses, of keeping accounting records of GST input and output, and submitting quarterly returns to the Inland Revenue Authority of Singapore.

There is also the multiplier effect of GST, as small businesses may not be able to get the full benefit of the refund from GST input. The higher cost of living faced by employees as a result of GST has to be reflected in their salaries, leading to a multiplier effect.

Businesses in Singapore also incur the cost and inefficiency of making and receiving most of their payments by cheques. There is also the high cost of complying with many regulations. Even the calculation of monthly Central Provident Fund contributions can be a headache, given the different rates of contribution for different employees.

Another friend, who has experience with manufacturing costs in many countries, told me that manufacturing in Singapore has become rather uncompetitive and can be sustained mainly by tax incentives and concessions given to some multinational companies. This is not a healthy trend for our long-term development.

I hope the Government will take urgent measures to address the underlying obstacles to our competitiveness and the causes behind high business costs.

Tan Kin Lian