CONSUMPTION TAX (Machinery for collection)

Mr Chng Hee Kok asked the Minister for Finance if he will give an estimate of the development and recurrent expenditure for the setting up of the machinery to collect a broad-based consumption tax.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, as I have mentioned in my Budget Statement, a broad-based consumption tax has considerable impact on the economy, especially on individuals and on our export and tourist trade. My Ministry is still considering the form in which such a tax should take in order to minimize its possible adverse impact, for example, whether it should be a Value Added Tax similar to those introduced in Europe or New Zealand, or a general sales tax at the retail level like the United States or at the wholesale level like Switzerland. Consideration would also be given as to the degree of integration desired between the existing and the new consumption tax, and the number of inspections necessary to police the system to ensure minimal abuse.

As such, and until these matters have been agreed to, it is rather premature for me to provide an estimate of the expenditure to be incurred in the setting up of the collection machinery. However, the experience of other countries in terms of staffing ratios is interesting, if not indicative. For example, New Zealand employs one staff member for every 304 taxpayers; Italy employs one staff member for every 267 taxpayers; in the Netherlands, one staff member is required for every 190 taxpayers and in the United Kingdom, one staff member is required for every 115 taxpayers. In terms of the initial capital outlay, much depends on whether the existing computer system can be used or if some upgrading is necessary or whether a whole new system need to be purchased. Needless to say, much of the costs to be incurred would depend on the complexity of the consumption tax system adopted.