GOODS AND SERVICES TAX BILL

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Goods and Services Tax Bill, as its name suggests, provides for the imposition and collection of the goods and services tax (GST). Government's proposal to introduce the GST as part of the tax restructuring to shift reliance from taxation on income to consumption has been explained in the White Paper on the GST. GST is introduced to enable us to lower our corporate and personal income taxes to promote enterprise and growth, and to make Singapore a more competitive place for doing business. It is not about raising more revenue. The proof of this is in the package of tax reductions, rebates and subsidies that I have announced in the Budget Statement to offset the GST. These measures will ensure that practically all households would not be worse off after the tax. Members of this House have debated on this package.

Allow me now to explain to the House the main features and provisions of the GST Bill. The GST Bill is modelled after the United Kingdom Value Added Tax Act, with modifications based on the New Zealand legislation. The Bill follows the UK legislation in specifying in Schedules various aspects of the tax, eg, liability for registration, details on valuation and the list of exempt supplies. It, however, excludes provisions peculiar to the United Kingdom and the European Community which would complicate our GST system. More importantly, the Bill confines exemption to only the sale and lease of residential properties and specific financial services which are difficult to tax. In the case of zero-rating, it will apply only to exports of goods and services.

I will now turn to the main provisions of the Bill. First, the scope of the tax. GST will be charged on any supply of goods or services made in Singapore by a taxable person in the course or furtherance of business, except where the supply is exempt; and on goods imported into Singapore by any person. This is provided for under clauses 7 and 8 of the Bill. A taxable person is anyone who makes or intends to make taxable supplies of turnover above $1 million per year. These persons are required to register with the Comptroller. Those whose annual turnover is below $1 million may apply to be registered provided they are prepared to remain taxable for a minimum period of two years. Such persons are usually those whose customers are businesses which require tax invoices to claim deduction of any GST that is incurred in the business purchases. Detailed provisions relating to registration are specified in the First Schedule.

I have earlier announced that the GST will be at the rate of 3%. This is specified in clause 16 of the Bill. The tax is charged on the value of the goods or services supplied. Clause 17 provides that if the supply is for a consideration, the taxable value is the amount of money excluding GST which the customer has to pay. If the consideration does not consist wholly of money, the taxable value is the open market value. This is the value the supply is likely to fetch in the open market.

As GST is intended to be a tax on the final transaction price, the taxable value will include customs duties and other indirect taxes levied on the supply. In the case of imports, clause 18 provides that GST shall be payable on the value used for customs purpose, excluding local handling charge, but inclusive of customs duty. Special rules on valuation are specified in the Third Schedule.

There has been some concern that as GST is collected at every stage of the production and distribution chain, the consumer will end up paying GST at more than 3%. I would like to assure Members that this will not happen. This is because the taxable person can deduct the GST he pays on his inputs from the GST he collects on his outputs. The balance has to be paid to the Comptroller within 30 days after the end of every three month accounting period. This is provided for under clause 19 of the Bill.

If in any period, the input tax exceeds the output tax, he can claim a refund from the Comptroller. An exporter, for instance, could constantly be in a refund position. To enable exporters to have quicker refunds, the Comptroller will allow a shorter accounting period of one month. There will also be a scheme to allow approved exporters a waiver of the GST on imports.

Members will be pleased to know that the Bill requires the Comptroller to pay interest on late refunds. Details on the interest rate and the period beyond which interest is payable will be specified in the regulations.

In the case of a taxable person who makes both taxable and exempt supplies, clause 20 of the Bill provides that he can only deduct the GST he has paid on inputs used in making the taxable supplies. In the case of common overhead resources, the clause also provides for the Minister to make regulations to prescribe the method of apportioning the input tax to be paid to the taxable supplies.

As GST taxes only consumption within the country, goods exported from Singapore will be zero-rated. This means that the exporter does not collect GST on his outputs but is able to claim a refund from the Comptroller for the GST he has paid on his inputs. Consequently, zero-rated supplies will be completely relieved of the tax. Export of services is also zero-rated. As services are not physical commodities, the export of services is defined according to certain characteristics such as the recipient, place of performance and location of the property in connection with the service. These services known as "international services" are specified in clause 21 of the Bill.

If a supply is exempt from GST, no tax is chargeable on it. At the same time, the supplier cannot claim credit for any tax he has paid on his inputs. The list of exempt supplies is specified in the Fourth Schedule. It is confined to specified financial services, and sale and lease of properties approved exclusively for residential use. The list of exempt financial services was prepared without the benefit of consultation with the financial community. In view of the complexity and the range of financial services available, the list will be reviewed following submissions to the Select Committee.

Clause 24 of the Bill allows the Minister to grant by order relief from GST. This provision enables Government to exempt from GST, imports by diplomats, foreign armed forces, regional or international organisations where this is required under the respective international or bilateral agreements as well as personal effects and normal duty-free entitlements of bona-fide travellers.

I have said earlier that goods imported to Singapore will be subject to GST. In the case of services which are imported, clause 14 of the Bill requires the business, which is receiving the service from an overseas provider, to charge itself GST as if it had provided the service. This "reverse charge" provision is to prevent unfair competition from the overseas supplier. Without the provision, an exempt or partially exempt trader could avoid paying GST on his inputs by obtaining services from overseas rather than locally. The reverse charge provision will apply to all services received from abroad except when the same service supplied locally is exempt.

With regard to the application of GST to Government, clause 28 provides for Government to charge GST on services it supplies in competition with the private sector. This is to ensure a level playing field.

The GST Bill allows special rules to be made for GST to apply to second-hand goods, games of chance and general insurance. In the case of second-hand goods, the prices would have included GST incurred when the items were first bought. In view of this, a special scheme will be provided to allow GST to be charged on the second-hand dealer's margin in the event that the dealer purchases goods from non-registered persons and would therefore not be able to claim the input tax credit. Clause 23 of the Bill allows the Minister to make regulations to provide for this scheme. Where the dealer purchases a second-hand good from another registered person, GST will apply in the normal way.

In the case of betting, sweepstakes, lotteries and other games of chance, clause 34 of the Bill enables regulations to be made for GST to be levied on the proceeds after deducting the pay-out. This recognises that the gambler does not explicitly pay a price for the services of the betting agent, but rather as an expected return which is reduced by the services supplied by the agent.

Life insurance is difficult to tax as it contains a savings element. Consequently, it will be exempted from GST as is the practice in other VAT administrations. General insurance, on the other hand, does not have a savings element and will be taxed as is the case in New Zealand. Clause 29 of the Bill allows the Minister to make regulations for the GST to apply in respect of general insurance services.

Following the imposition of GST, the general insurance company will have to charge GST on the full value of its premium. If the insurance company meets a claim by directly replacing the lost or damaged item, it can deduct the tax incurred on the purchase of the replacement item. If it settles the claim in cash, the payment made by the insurance company will have to be increased to compensate the insured party for the GST that it will have to bear when replacing its losses. The insurance company can deduct the VAT supplement which is computed by applying the GST inclusive rate on the value of the claims it pays. This approach ensures that the insurance company is taxed on its value added.

If an insured party is a taxable business, it can deduct the GST it has incurred on the insurance premium. If it receives a claim payment, the insured business has to pay an output tax on the claim it receives as though it is making a taxable supply. On the purchase of the replacement item, it can deduct the GST it has incurred on the purchase.

On the appeal procedures, the Bill provides for the constitution of a Board of Review to hear appeals on GST. The constitution and proceedings of the GST Board of Review are patterned after the Income Tax Review Board.

Finally, the offences and penalties are specified in Part IX of the Bill. In serious offences, for example, when a person evades or assists another to evade tax, he is liable on conviction to a penalty of three times the amount of the tax evaded, and a fine not exceeding $10,000 or to imprisonment for a term not exceeding seven years, or to both such fine and imprisonment. In some other offences, the maximum fine is $5,000.

The GST Bill, as drafted, is sufficiently flexible to allow subsidiary legislation to be drawn up to modify the detailed operation of the tax where necessary. Over the next few weeks, my Ministry will be circulating the draft regulations. Members of the business community can study these regulations and let my Ministry know if they have any suggestions to modify and improve on them.

Mr Speaker, Sir, the GST is a wide ranging tax on consumption of goods and services in Singapore. It is completely new to Singapore. Government will refer the GST Bill to a Parliamentary Select Committee. Members of the public and the business community will be invited to make submissions to the Committee. Government welcomes suggestions to improve the administration and the provisions of the Bill. This process may take up to several months, leading to the Third Reading of the Bill in the last quarter of this year. I hope that through this process we can collectively develop a GST system best suited to the needs and circumstances of Singapore.

Sir, I beg to move.

Question proposed. 12.58 pm

Dr Ow Chin Hock (Leng Kee): ( In Mandarin): Mr Speaker, Sir, I support the Bill in the name of the Minister for Finance. Our Government Parliamentary Committee (GPC) supports the introduction of the goods and services tax because we understand that the economic efficiency of the tax reform, ie, from direct taxation to indirect taxation, is aimed at enhancing our international competitiveness. I have been very concerned with the issue of consumption tax since quite some time ago. In May last year, I appointed an economics graduate of the National University of Singapore to be my Legislative Assistant to conduct a study on "Consumption Tax - Theory and Practice". I have submitted the report of the said study to the Ministers in charge and all the members of our GPC. The Feedback Unit conducted a dialogue session on GST on 16th February. Notes of the discusion, together with three submissions, were submitted to the Ministers in charge. On 8th and 9th February this year, when we debated on the Budget Statement, many of my Parliamentary colleagues also presented many valuable views on the proposed GST, with the exception of Mr Chiam See Tong who mixed up the turnover tax with the value-added tax. Summing up all these discussions, I notice that the focus of discussion is not on the rationale and principles of the GST, but rather on its implementation and practice.

On implementation, the key issues which we are most concerned with are, first, the impact of the regressiveness of GST on the lower income families. I believe the income tax reduction and the various rebates and subsidies are sufficient to offset the GST burden of these families. One controversy related to this issue is whether essential goods and services, such as rice, foodstuff, public transportation, etc. should be exempted from GST. In fact, 60% of the participants in our dialogue session supported the exemption of rice from GST, and some others suggested that we should exempt public transportation charges from GST. I personally understand that the compensation method is better than the exemption method because the compensation method offers a greater freedom of choice for the consumers and it does not reduce the comprehensiveness of the GST. However, the Finance Minister should also consider the non-economic factors. On the one hand, you exempt financial services from the GST. Yet, on the other hand, you are taxing the public transportation services and medical services. I am afraid we may have difficulty convincing the people.

Secondly, another problem of GST is inflation and profiteering. I agree with the Finance Minister that the GST itself will not lead to inflation. At most, it will cause a once-off price increase. However, I must remind the Finance Minister not to neglect the effect of price expectations which may well lead to inflation. I am confident that the cooperation of the Government, the trade unions, the consumer association and the community organisations in containing profiteering will achieve positive results. However, I do not agree to price control because this is not in line with the operation of market economy and is unable to control the quantity, quality and specifications which go beyond the prices. Furthermore, we have to distinguish between profiteering and price increase brought about by cost increase. In other words, price increase is not necessarily profiteering. In this respect, when Government departments, statutory boards and state-owned companies are to adjust their prices or fees, they must have very good reasons for doing so. Otherwise, it would give a wrong impression that we only "allow the magistrates to burn down houses while the common people are forbidden even to light up their lamps." ( ).

Thirdly, the problem with the implementation of GST is its effect on different sectors and industries. I would like to know, apart from the $30 million to be incurred by Government agencies, what would be the compliance or collection cost incurred by the various enterprises each year. I hope that the Inland Revenue Authority will try its best to simplify the procedure for tax returns and tax refunds and shorten the time taken for the tax refund. On tourism, I agree to the refund of GST to tourists. Conceptually, GST is meant to tax domestic consumption and retained imports. Articles purchased by tourists are meant to be consumed outside Singapore - as though they are exports. Never mind how many tourists may find it too troublesome to claim for refunds, psychologically, we should not create an impression that shopping in Singapore is getting more and more expensive and then you have to pay tax on top of that. This is certainly not conducive to the development of tourism in Singapore.

Mr Speaker, Sir, it is my belief that the fundamental principle of governing a country is in taking care of the people and in applying a policy of benevolence. The way of governing is by care, by determination, by patience and, if necessary, by being ruthless. When implementing GST, I suggest we should also proceed likewise.

First, care and concern ( ). Looking after people from all walks of life, particularly the lower income families and retirees, and avoid increasing their burden. In this respect, the Government has done its best. The most convincing facts are: (1) 74% of our families will not have to pay income tax from next year; and (2), various rebates and tax reductions resulting in the Government losing $1.1 billion in revenue.

Second, determination ( ). Once we have decided after careful deliberation, we should adhere to the principle and implement it. Do not hesitate. Since it is announced that GST will be implemented with effect from 1st April next year, we should implement it as scheduled. Similarly, it is announced that GST will remain at 3% for five years. So we should never, never go back on our words. We should be determined and keep our promise so as not to tarnish our reputation.

Third, patience ( ). From feedback received, many HDB residents do not really understand the issue of GST and the various rebates that they will be receiving. Perhaps they think that GST will only be implemented sometime next year, perhaps they are too busy with their commitments, maybe they are spending too much time guessing who will be the winner in SBC's "Star Search" programme. Whatever it may be, the Ministers, PAP MPs, trade unions and community leaders should exercise greater patience to explain to the people even further so that they will understand that in the long run, the tax reform will be to their benefit. I suggest the two Ministers - Minister for Finance and Minister for Trade and Industry - should go on television, present a show and explain the issue of GST in order to reach out to the people.

Fourthly, ruthlessness ( ). In order to deter the unscrupulous businessmen from profiteering, to protect the interest of the people and to prevent profiteering from affecting the implementation of the GST, it may be necessary for the Government to be ruthless in severely punishing one to deter the others ( ).

Mr Speaker, Sir, some clauses in the Goods and Services Tax Bill need to be further deliberated. For example, in clauses 17 and 18, the market values seem to be different. Some values have already included import tax, that is to say, tax upon tax. Other values do not include import taxes. The definition of "international services" in clause 21 and the special method of taxing second-hand goods in clause 23 also need to be further expounded. Clause 39 specifies that the businesses have to keep all the invoices for seven years. Although this data can be stored in the computer, approval of the Inland Revenue Authority is required. Perhaps this condition can be waived or maybe the seven-year period may be shortened. This may be a legal requirement. But I think we should try our best to avoid giving too much burden and trouble to our enterprises and businessmen. These are technical details which may be looked into by the proposed Select Committee on the Bill.

Mr Speaker, Sir, I support the Bill.

Mr Leong Horn Kee (Thomson GRC): ( In Mandarin): Mr Speaker, Sir, I would like to start by addressing the question of whether the Government truly needs to introduce the GST. The Government explains that the basic objective of the GST is to enable the Government to lower the corporate tax rate and personal income tax rate, so as to encourage the spirit of enterprise and maintain an attractive business environment.

Then, the basic question to ask is: Could the Government have reduced corporate and personal income tax rates by 3% without introducing GST of 3% or more?

If we were to study in depth the national accounts of the Government, we will notice that Singapore is one of the rare countries that has been enjoying Government budgetary surpluses. In fact, it has been enjoying surpluses since 1968.

In 1992, the Government's total revenue is $17 billion, its total expenditure is $12 billion, therefore, giving a surplus of $5 billion or 28.7% of the total revenue. This healthy surplus is achieved after taking into account the Government's expenditure for both operating and development purposes. This is quite remarkable indeed. Few countries can boast of such record achievements.

The Minister mentioned in his Budget Statement that the 3% cut in corporate tax will incur a revenue loss of over $300 million and a 3% personal income tax loss is estimated to be close to $500 million. Therefore, the total revenue loss is about $800 million. This is only 16% of the revenue surplus of $5 billion for 1992. The Minister announced that the budget surplus for FY 1993 is only $1.7 billion. This surplus is still higher than the expected $800 million loss in corporate and individual taxes. Hence, my contention is that in view of the healthy budget surplus of the Government, the Government can afford to do the following:

(1) It has the capacity to reduce further both corporate and individual taxes in the near term without increasing further the proposed GST rate of 3%.

(2) Our financial position is sound and healthy. The people need not fear that after introduction of the GST, the Government is under budgetary pressure to substantially increase the GST rate above 3%. The Government has healthy budgetary surpluses.

(3) The objective of introducing the GST is not so much to cut corporate and individual tax rates per se, but also to introduce an alternative form of indirect tax, so as to give more flexibility and responsiveness in implementing Government's fiscal policies in future.

Many people have a great fear of GST. I think there are several reasons for their fear. For the business people, firstly, they are afraid that this will have an impact on their businesses. Secondly, they find it difficult to keep business records to pay GST as required by the Government.

For the ordinary people: (a) The tax is regressive. The poor and the lower-income groups who do not pay income tax now ha2ve to pay more taxes via GST. (b) Inflationary impact. People are afraid that the merchants will profiteer and make unreasonable price increases.

Actually, there should be no fear of GST. It is not a new concept. In fact, consumption taxes of various forms have been introduced in over 20 countries, some as far back as 15 years. Among our neighbours in East Asia, GST was successfully introduced in South Korea, Taiwan and Indonesia. South Korea implemented VAT in 1977; Taiwan and Indonesia in 1986; and Thailand introduced VAT on 1st January 1992. The other Asian countries - Malaysia and Philippines - have general sales tax on manufactured goods for several years already. In fact, I understand that the introduction of VAT in South Korea and Taiwan has helped to spur export growth in these two countries.

Now, let me address briefly the various concerns of businesses and individuals.

On impact of businesses, Mr Speaker, Sir, I believe the impact is not serious. The reason is that while they have to pay a 3% GST, they will enjoy a 3% reduction in their corporate tax. Moreover, the 3% GST can be passed on to the consumers. There are some concerns on the dampening effect of GST on the retail, food and leisure sectors, as people might cut back on spending.

Another matter which has been raised is how would the GST be applied for existing contracts. Next year, when the GST of 3% is introduced, GST has to be paid. This may give rise to commercial disputes as to which party should absorb the new GST. It will be helpful if the Government can make clear on these rulings.

After the introduction of GST, many merchants will have to keep records and this may prove to be difficult to small merchants. Therefore, the Government should give them assistance and show understanding. Many people are afraid that GST will lead to inflation. If we have a very strict monitoring system, we will not have profiteering and inflation. The Government should set up a central watchdog panel to monitor the situation. And this panel can encourage each constituency to form watchdog sub-groups under the CCCs and RCs. These groups can keep close tab on prices of stallholders and shopkeepers. Where there is evidence of profiteering or unreasonable price increases, such cases should be reported to this organisation for investigation. To help people to compare prices before and after GST, the Government can prepare a "Prices Guide" of main consumer items for people's reference. Apparently, this was done in Taiwan and South Korea.

I believe we can learn from the experience of South Korea and Taiwan in the implementation of the GST. They both successfully implemented GST. Like Singapore, they introduced GST not to increase tax revenue but to enable a more even tax distribution.

South Korea took six years to prepare the people for the VAT reform, and Taiwan took four years to plan and implement. Singapore, being a small nation, may not take so long. But I would like the Government to give more time and attention so as to prepare our people and the businessmen for GST. Because the GST is only 3%, and the Government has assured that it would not raise the rate for five years or maybe longer, I support the Bill.

Mr Chay Wai Chuen (Brickworks GRC): Sir, I rise to speak in support of the Bill in the name of the Minister for Finance.

First, I must compliment the Minister and his staff for putting up one of the most lucid and cogent White Papers on Government policies. I am sure he will enjoy the GST as much as I have enjoyed reading it in the White Paper. It would, however, be strangely hedonistic to support the Tax Bill before Parliament for its lucidity and cogency. However, as someone has said, there is nothing more certain in life than death and taxes, so if we are to be taxed, let us have a good one.

My colleagues have covered several grounds on the GST. I will only want to make several points. First, the goods and services tax is necessary as part of tax reform. The time to introduce an alternative tax is to do so when the Government does not need the revenue - in good times, not in times when you need it. Sir, I have made this point here two years ago.

Twenty-one of the 24 OECD countries, the most developed countries in the world, have the VAT except for the United States, Australia and Switzerland. Outside the OECD, 40 other countries have it. Our neighbours, Indonesia, Thailand and Philippines have it. Japan, Korea and Taiwan also have it. A value added tax system is a pre-condition for EC entry. Many of the Eastern European and Central European countries, who want to join the EC, are working hard to put in place a VAT system. In a world system of emerging trading blocs, eg, EC, AFTA, NAFTA, having a VAT system in place facilitates border tax adjustments, which is important for manufacturers and businesses if they are to correctly and accurately reflect such adjustments to minimise tariffs/duties as our goods enter international trade, thereby maximising our competitiveness. Sir, I think this is an important consideration for small open economies, like Singapore.

It is no point for the Government to have a VAT system unless it can help us in Singapore. The Minister has explained earlier why it is a more stable source of tax revenue than solely relying on personal and corporate income taxes. The experience of the last economic recession in 1984/85 has taught us a lesson about relying too heavily on personal and corporate income tax as a major source of revenue. The Government hopes to attain a 50-50 balanced two-way revenue after the GST system is implemented. This is something desirable as a stabiliser. In this respect, we must remember that the consumption tax was a recommendation of the Economic Committee.

Secondly, the Minister has generously offered many income tax cuts, reliefs and offsets to address the burden shift of the tax. It also attempts to answer the question for ordinary Singaporeans, "What's in it for me?" There is a wider overall question, "What's in it for us?" that I would like to focus. After the hullabaloo is over, when the concern and worry regarding inflation, cost of living subside, as I am confident it will sooner rather than later, the larger picture that we must see is the growth dimension of the GST.

There are several aspects to this. There is the investment effect because of the cut in the corporate income tax expected to be 5%. Corporations, local and foreign, will increase profit and can invest more, leading to more income growth and jobs for Singaporeans.

There is the zero-rating for exports. Exporters in effect are given an implicit subsidy that is GATT consistent, in order to allow them to compete more effectively overseas. Export promotion must remain one of the cardinal features for a competitive open economy to achieve sustained economic growth. The zero-rating of exports under the GST assists in this.

There is the GST credit for all capital expenditure purchases given wholly at the time of purchase. I consider this to be a powerful element for raising capital intensity in our industries and businesses. While investment decision by businesses may not be sensitive to taxes in the short run, we must remember that whatever tax credits for capital expenditure will still raise business profits at the bottomline. Increased business savings must lead to higher investment for the economy in the long run. This will help in our productivity and give higher wages to our workers, generating higher value-added.

Sir, the Government has deliberately chosen a value added tax of the consumption variety. Hence, it is called a consumption tax. This is because the Government is excluding from the tax base all investment or capital expenditure of the tax period. The Government could have adopted a VAT of the income variety. In that case, it would have taxed investment spending as well, if it were interested in more revenue. That would not be consistent with its intention to encourage savings by Singaporeans and Singaporean businesses. There is potential for economic growth in this and Singaporeans will benefit by this.

Thirdly, Sir, a multi-stage GST is supposed to be an efficient and a good tax for the taxman. It is not the same as a turnover tax as mentioned by the hon. Member for Potong Pasir. Economists think it is a good tax because it is neutral - it does not distort allocation of resources. For example, in the global ideal situation, the tax should be neutral to foreign trade (so that neither importers nor exporters are favoured); it should be neutral to owners of capital and labour (so that none is favoured in the choice of techniques); it should be neutral to firms which are either horizontally or vertically integrated in the corporate sector or outside it. The value added tax, in the ideal situation, introduces no distortion to the resource allocation, leaving the optimal allocation to the free play of market forces. Hence, it is so important to introduce the least number of zero-ratings and exemptions. We are favouring exports and investments, but that is good for our future; as it gives support for economic growth, employment and income.

Beyond that, I urge the Minister to be sparing in granting zero-ratings and exemptions. I support the Minister in not granting exemptions for medical services because that is the correct decision, if we are not to deviate from the economically optimal solution. Medical services are a big ticket item - exempting medical services will introduce distortions. I also support the Minister in not granting exemption for Town Council's service and conservancy charges. Sir, I must declare my interest as I am a Town Council Chairman. This is a time when the true believers of the free market are being tested.

The Minister is correct in applying the solution of increased subvention which is considered necessary for social policy, rather than exemption which distorts choices. I can understand the reason why special groups want to be treated specially. The Minister should be sparing in giving a zero- rating here and an exemption there. Many European countries have found this to their regret that, by doing so, the tax becomes too unwieldy and too costly to administer and audit. At a time when we are phasing in a new scheme of taxation for the economy, with long-term implications on income and growth, the Minister must not buckle up the economy the wrong way, particularly when we are gearing up for more privatisation, free market and building up a competitive external economy.

Fourthly, Sir, I must touch on the so-called regressivity of the GST. From a theoretical static point of view, this tax may be regressive. For example, people argue that as consumption tends to fall proportionately to income at higher level, therefore, a fixed rate of tax on consumption goods will imply a lower tax paid proportionately to income at the higher level. From a practical point of view, this fear is illusory. This is because the Government is offering income tax relief as an offset. This means most Singaporeans will pay less tax. More important, by pushing for economic growth and income growth, most Singaporeans will go on to a higher level of income which means that they are going to pay lower tax for consumption proportionate to their higher income levels, thus becoming the benefactors of the so-called regressivity of the tax.

Finally, Sir, I must bring up a category of Singaporeans who will not be benefitting from the GST. They are the ones who have retired and living on pensions or savings. There are many of them in my constituency. While prices and income can adjust in the free market for those who are working, the old and retired do not have this possibility because they are no more earning any income. I may also include the aged poor.

In introducing a tax reform such as the GST which will have across-the-board implications for income and prices, there is the question of inter-generation equity we must address for those who have contributed their whole working life in the building up of Singapore. The Minister has promised he will find more ways of offsets. If he cannot find more new ways, I urge him to give more to the existing ways.

My colleague, Dr Wang Kai Yuen, has worked out the price increase for zero net gain based on the figures given in the Budget. The figures vary from 4% to 7% for the various household types. For the retired and the aged poor, I urge the Minister to monitor the likely price increases affecting this category of Singaporeans and make periodic adjustments to assist them, at least in the first few years when this tax scheme is in operation.

Sir, I support this Bill.

Mr Chiam See Tong (Potong Pasir): Mr Speaker, Sir, if the GST were put to the people for a vote, they shall most probably reject it, like the case in Australia in their recent general elections. The PAP did not even let out a whisper, let alone make the GST one of its election platforms at the 1991 general elections and the 1992 by-election at Marine Parade GRC. The PAP is not as forthright and above board as the coalition of John Hewson in Australia. It is true that the coalition lost the elections to the Labour Party, but they can hold their heads high. They lost with dignity. At least, we can truly say that they are not afflicted with the kiasu syndrome.

Business people are concerned with GST but, above all, it is the poor who are most worried. When we pause to think what this GST is all about other than raising massive revenue for the Government in time to come, it is how it will affect the poor when it is implemented. Despite the denials of the Government, the fact is that there are large numbers of poor people in Singapore. There must be a few hundred thousands of Singaporean workers who are earning less than $800 per month. Then there are the unemployed through no fault of their own, the aged and the pensioners.

Other than these large groups of people, there are also the foreign workers. A foreign maid is now paid about $280 per month. The employer has to pay, in addition to the salary, a levy of $300 per month. A foreign construction worker is paid about $500 per month but his employer has to pay the Government $400 levy per month.

The levies imposed by the Government on foreign maids and workers are outright tax. After collection of the levies, the Government does not provide any benefit whatsoever to all these workers and their employers. All medical bills of these workers are borne mostly by the employers. When the GST comes into place, the Government shall be taxing on the spendings of 200,000-odd foreign workers in Singapore. The foreign workers, of course, do not keep all their earnings. They do go out and spend their incomes. They use their incomes to purchase goods and also for entertainment. And there shall be taxes on these spendings.

Therefore, in addition to the Government levies, the Government shall also earn on the GST in respect of the spendings of foreign workers. There shall be more revenue for the Government in respect of all foreign workers. What does the Government intend to do with the additional revenue? Does it intend to help the foreign workers upgrade?

Why do I speak up for these foreign workers when I do not hope to get any votes from them? Very simple. The answer is that we are Singaporeans. We are a people with a heart. We care. We show concern for the less fortunate. And if we do care and speak up for foreign workers, as they also help us in our economy, then more so we should speak up for the poor in Singapore, and the SDP does speak up for the poor in Singapore. We do show concern for the less fortunate in Singapore. We, the SDP, are not indulging in the politics of envy. I am surprised that MPs who are also union officials should be attacking the SDP for their concerns of the plight of the poor in Singapore. Are they true union officials or are they working for the employers?

By speaking up on behalf of the poor in Singapore, the SDP is not causing a problem for Singapore, but it is causing problems for the PAP. If the PAP Government, as it says, has done a lot of good for the poor, eg, by giving as much as $70,000 subsidies per worker and getting back in return only $20,000 in terms of taxes from each worker, then it should not be unduly worried. The workers shall continue to vote for the PAP. But many suspect that the truth is that the PAP Government is not doing as much for the workers as it should. That is why it reacted so sensitively to the concerns of the SDP for the poor in Singapore.

Singaporeans cannot be totally materialistic. We are human beings. We are, above all, Singaporeans. We must have a heart. We must care and we must show real concern for the less well-to-do. The whole thing about the GST is how it will affect the poorer people of Singapore in years to come. Now, we start off at a low rate of 3%, like Sweden in 1959, when they too had a rosy situation in respect of their economy. But after just 30 years, the GST rate in Sweden has escalated to a high of 24%. And whilst the GST rate has remained at 24%, its income tax rate has not come down. It remains at a high of 80%.

Mr Lim Hng Kiang: Because of the SDP!

Mr Chiam See Tong: I think you got it all wrong, Mr Lim Hng Kiang. SDP stands for Singapore Democratic Party. It is not Sweden Democratic Party.

The maximum income tax rate has dropped to 50% but it is still high by Singapore standards. The SDP says that there is no need for GST at this point in time. In fact, for Singapore, there is a case to be made out. There should not even be a goods and services tax at all.

Tourism is one of our big income earners. I understand that the cess which is now slightly reduced will soon be going up again. Because the Singapore Tourist Promotion Board is a self-supporting body and it needs funds to sell Singapore and to give wide publicity for Singapore. It does need the funds and the cess will probably go up again to 3%.

So, with the GST, Singapore is not going to be a cheap place to come to. Probably tourists will not find it attractive to come to Singapore when the GST is implemented. Tourism is also a big employer of labour in Singapore. And if less tourists come, of course, more Singaporeans will be out of work and there will be more problems for their families.

Another character of Singapore, which is probably against GST, is that it is a traditional entrepot. It is a distribution centre. It does a lot of re-export trade. I have spoken to local businessmen who have done a lot of re-export trade, in particular to Indonesia, Burma and Bangladesh. They told me that there will be problems for them. I hope the Government can really solve their problems because they are really concerned. I do not want to go into the complexity of their kind of business.

Unlike the OECD countries and other countries like New Zealand which have a heavy welfare burden, Singapore does not have a welfare scheme. Every Singaporean earns his money and takes care of himself. The Government openly says that it does not owe anyone a living and it wants all Singaporeans to be self-reliant. So its welfare spending is minimal. Therefore, we do not need augmented revenue from GST.

The Government says that GST will make Singapore more competitive. I think this is a fallacy, because business people who come to Singapore do not just look at our income tax alone. They look at the total costs. If the Government is saying that our land cost is going to be very high, I hope it will do something to keep land cost down, because it is in control of the land in Singapore with the Land Acquisition Act. I notice in the last two years land prices in Singapore have shot up so high. They have gone through the roof from the prices that I know. Why are land prices going up? Because there are indications from the Government. HDB prices are already going up above the $300,000 mark. So when private developers think that HDB prices can go that high, they can also push up land costs. If land cost is a problem, I think the Government should take note and do something about speculation on land and about the unrealistic situation of land prices. That will keep down the costs.

The other character of Singapore is that it has got a CPF scheme. This compulsory savings scheme is not minuscule. It is very substantial. The savings rate of workers in Singapore is not 2% or 3%. At one time, it went up to 50% of their savings. So CPF savings is a factor. There is plenty of money for Singaporeans when they retire and the Government need not support them. There is no need to go into Government funds and take money to support Singaporeans when they get old. So we do not need a GST for additional revenue.

The Member for Brickworks GRC says that with GST, we will encourage investors and there will be more funds. In fact, Singapore has always plenty of funds. As far as I know, our banks are bulging with money. Look at the interest rate. We hardly get anything when we put money in the bank. Our Town Council is getting something like 2.25% return from fixed deposits. What does it show? It shows that there is plenty of money in the banks but no takers. If Singaporeans are better entrepreneurs, I think that is the more important point and they should make good use of this money that is readily available for business and bring profits to Singapore. I think that is probably a greater priority. We should encourage more entrepreneurs and the only way to do that is to have a more open society. 1.45 pm

Mr Low Thia Khiang (Hougang): ( In Mandarin): Mr Speaker, Sir, first of all, let me begin with the White Paper on GST. I feel that the reasons for the proposed implementation of consumption tax as given in the White Paper are not convincing. The White Paper states that the high income tax rates will reduce the willingness of people to work, to save and to invest and will even cause a brain drain. Has our income tax rate reached the stage where it is meaningless to work harder? The UK, US, Korea and Thailand have higher rates of income tax. But have their people refusrefused or are unwilling to work? Furthermore, what are the factors for brain drain? Is it because of the high tax rates? Singaporeans who emigrate may even go to countries where taxes are higher, for example, Australia where the income tax rate is as high as 47%, New Zealand, 33%.

Secondly, the White Paper states that high corporate tax suppresses entrepreneurship and it will also reduce the attractiveness of Singapore. The success of Singapore's economy, is it because we are a tax haven or is it because of other factors that the Government has been bragging about so much? As an investor, he does not consider so much the tax rate, but whether he can make money or not. Put it simply, to say cutting down the tax rate can attract investment is plain lunatic ravings. Even if you cut the tax rate to zero, companies that do not make money will not come here at all. According to the latest investment news of the Economic Development Board, as at the end of 1992, investment in the manufacturing sector reached a record high of $3.5 billion and I quote from Singapore Investment News: "Investments in Singapore's manufacturing sector hit a record high of $3.48 billion in 1992, reflecting investors' strong confidence in our Republic."

Thirdly, the White Paper states that the GST will provide a more stable source of revenue because property tax will fluctuate according to the market situation and corporate and personal income tax will also fluctuate according to changes in the economic cycle. It is true. Unless Singaporeans do not eat, otherwise whether the economic condition is good or bad, every day they have to pay the GST first. To the Government, of course, the GST is a stable source of revenue. But to the people it is an inevitable tax burden.

Fourthly, the White Paper states that the GST system is a good tax system to avoid evasion. Of course, this is true. But the effectiveness of preventing tax evasion is so great that even those who do not normally pay tax will have to pay tax and their burden will be increased.

Fifthly, the White Paper states that an ageing population means that we must cut down our reliance on income tax, because it will be diminishing. The tax burden will also fall on the young people and it is not fair.

Sir, personal and corporate taxes account for only 44% of our total Government revenue. This is less than half. Why cannot the Government consider increasing the tax on the profits made by the Government related companies and other corporations so as to cut down the dependence on personal income tax? If you think we should rely on the consumption tax, then the ageing population, with more and more retirees, will have to carry a greater burden of taxation and they will suffer a lower standard of living. The savings deposited in the CPF Minimum Sum would also suffer a devaluation in real terms. Will the Government ask them to increase their Minimum Sum and Medisave to provide for their old age? The Government also says that it is only changing the tax system and not to increase the tax revenue, and this is only in preparation of a rainy day. The primary purpose of a taxation system is to get tax revenue. If the intention is not to get more tax, then what is the purpose of having this tax system? Is this something which the Government, which brags so much about efficiency, will be prepared to do? Although next year, there may not be any tax increase or revenue increase, in the long term the tax revenue will increase.

Every Government will have to tax the people because the Government has to depend on the tax revenue to maintain all the necessary services and to achieve the objective of redistribution of wealth. So it is something that the Government has to do because the Government has to maintain the social services and the survival of the whole country. The people also have the duty to pay tax. They must make some sacrifices to pay out of their income in the form of a tax so that the country can survive. So when it is necessary to raise taxes or to impose another form of tax, the Government must prove to the people that there is a need to do so. The Government must explain very frankly to the people the kind of tax burden and the impact that they will suffer from. They should not pretend that nothing will happen, and it is just for the purpose of preparing for a rainy day. Even if you want to prepare for a rainy day, you must also consider the actual circumstances. The Government makes a lot of money. The Government companies make a lot of money. So some of the money can go into the Government coffers to prepare for a rainy day. Even now, with the tax rebates announced, our income tax revenue is still increased by $476 million. So why should we have this kind of GST which has a far-reaching effect? I think it is irresponsible to do so now. If the Government wants to increase the tax revenue they must justify to the people the necessity to do so. We just cannot say that we are collecting the GST to prepare for a rainy day, and thereby setting the GST mechanism in place.

Let me deal with the impact of GST on the livelihood of the people and the increase of pressure on the people. The offset package by the Government cannot offset the impact of GST, because the GST will cause price increases. The people will worry about the higher cost of living and therefore greater stress in life. Secondly, so long as the people need to eat, to clothe and recreate, they must pay the GST too. Every day there is an impact. This impact cannot be offset simply by the tax package offered. Thirdly, although companies, firms or hawker stalls with an annual turnover of not more than $1 million are exempt from GST, they have to buy materials from their suppliers who are certainly subject to GST. So the cost increases and therefore the prices will also increase. As a result, the people in general will be affected.

Furthermore, in the case of income tax, people can ask for payment of tax by instalments, but in the case of GST there is no such concession. Unless you do not eat, otherwise you will have to pay. A Member of Parliament said that in the case of GST, only those fish that are willing to take the bait will get caught. But in Singapore, GST is omnipresent and very pervasive. Even rice, salt, fuel, and every necessity in life is subject to tax. So it is like a large net. Every fish, big or small, will get caught. There is no question of willingness or not in this case. So the impact of GST on the cost of living is very important.

There is also the multiplier effect of the GST. Without increasing the tax rate, the Government will get more and more tax revenue. Let us look at the table that I have distributed on the fees of the Polytechnic. Assuming that the GST was implemented as far back as 1983 at the rate of 3%, without any increase. Then the fee increase will also not be subjected to any additional profiteering because, I believe, the Polytechnic is not unscrupulous. You look at Table 1. Since 1983, without any GST, the fees have been increased by 157%. Table 2 shows that under the GST system, the same amount of fee increase will be very much more. In the end, the fee increase will exceed 209%. So without the GST, the students pay only $1,080, although the tax rate is only 3%, but with the multiplier effect of GST, the actual fee increase is $1,301. So it is an increase of more than 20%.

Although the tax rate of GST is 3%, the price increase will bring up more than 3% of tax increase. The Government can therefore reap higher tax revenue without increasing the tax rate. When prices of goods go up higher, the tax of the Government goes even higher. So my point is that the GST mechanism will enable the Government to collect increased tax revenue imperceptibly. On the face of it, the rate is low. It appears to be not so very important, not painful, but when the whole body is aching, you do not even know where the ache is. This is GST! So the impact of GST will increase the burden of our people and that is not something which the package offered by the Government can offset.

Is GST a better system? GST will tax everybody whether you are rich or poor. Because of that, the Government has to provide the so-called tax offsets or incentives and rebates because they admit that GST will have a very great effect and it is unfavourable to the lower income group. Whatever it is, the Government insists on implementing the GST, and defends itself by saying that it is a better tax system. I really fail to understand. Do you think the lower income group will not be affected by the GST? According to the multiplier effect that I have just pointed out, I doubt whether the argument of the Government can hold water. The Government says that because of the system, 74% of taxpayers do not have to pay tax any more. But I would say that with the implementation of GST, 100% of Singaporeans will have to pay tax, from cradle to death, and there is no escape.

So from the tax principle, property tax will have to be paid by those who own properties. The more properties you own, the more tax you pay and the more you get the more return you plough back to society. Income tax is also based on income. The more income you get, the more tax you pay. I think this is something that is acceptable to everyone of us. But for GST, whether you have any income or not, whether your business is profitable or not, you still have to pay the tax. Whatever you are, so long as you have to live and you have to eat, you have to pay the tax all the same. This is something which is very unacceptable. Unless it is absolutely necessary, unless you can justify it, we should avoid GST at all costs.

On the other hand, in the long term interest of the nation, because of the regressive nature of the GST and its accumulative multiplier effect, if we should have an economic recession, and ever rising cost of living, then would the Government consider giving more help to the poor and the lower income group? Then the Government will have a greater burden and what will happen? I hope we will not live to see this happening.

Sir, to summarise, my points are as follows:

Firstly, the reasons given for implementing GST in 1994 are unconvincing.

Secondly, the Government has under-rated the impact of GST on the people.

Thirdly, the Government has also under-rated the multiplier effect of GST on prices, especially the effect on the poor and the lower income group.

Fourthly, the Government only thinks of GST as an effective tax system and on the assumption that there will be rising wages and greater economy, but there is no consideration given to the economic recession like those in 1985 and 1986.

I, therefore, oppose the Bill. 2.00 pm

Dr Kanwaljit Soin (Nominated Member): Mr Speaker, Sir, I rise to support the Bill.

The GST Bill has two main economic objectives. Firstly, to reduce direct taxes to preserve long-term competitiveness. And secondly, to broaden the tax base.

We have so far concentrated mainly on the fiscal effects of the GST. The Minister for Finance has spelt out the various rebates and offsets to counter the regressive economic effects of GST on the poor. From the calculations so far, the Minister has been generous.

However, there will be some far-reaching social effects of the GST and these have not been discussed extensively, as the hon. Member Dr Ow Chin Hock alluded to just now. GST will affect our thinking and our way of life. There will be both positive and negative social effects.

Because of these wider social ramifications of the GST, I urge the Minister to form monitoring bodies to study the non-fiscal effects of GST. I suggest that these bodies carry out surveys on representative sample households before the imposition of the GST and then periodically after the imposition. These socio-economic surveys will give us an indication of the consequences of GST and how to maximise the positive side and minimise the negative aspects. If we do not start gathering information now, then we will remain ignorant of the existence and the extent of the negative social effects and we will not be able to address the relevant issues effectively.

The positive outcome of GST is that Singaporeans will tend to save more and spend less. Consumer culture will decrease to some extent. It is hoped that post GST, the new generation will grow to value thrift. The incentives will be in place for these young people to work hard and save more.

Two special groups of people will be impacted by the GST and, I think, negatively.

First, I want to talk about the elderly consisting of retirees, pensioners and those who have not been working in the formal job market. Of the total number of senior citizens above the age of 55, 34% of the males and 73% of the females have no personal income. These people, therefore, have to depend on their living allowance from children or relatives. It will be the working children who will benefit from the tax benefits and offsets, but will they pass this on to their dependent parents? In an ideal situation and where filial piety prevails, the answer would be "Yes". But over the last few days, we have heard various Ministers talk about human nature and the tendency to want more. Thus, the children may keep the extra cash in their own pockets and there may be no increase in the allowances given to the elderly. All of us in this House must accept this reality and plan for the aged with this possible scenario. Also, the older people often feel embarrassed and unable to inform their children that their allowance is insufficient because of the added GST burden. Thus, the aged may face financial hardships and be depressed and there could be a conflict in the relationship between the young and the old.

This is what happened in the case of the time-based telephone charges. Many old people use the telephone much less because they do not want to burden their working children with a larger bill. According to social workers and those working with the aged, the elderly have cut down on phoning their social and family contacts. This has led to some degree of social isolation. This was an unintended negative social consequence of an economic decision worked out on market principles.

Thus, I feel that it is important to recognise not only the economic but also the social consequences of the GST on the elderly. To help these old people to cushion the effects of GST and to compensate them for it, I suggest that we as a nation show filial piety to our senior citizens by taking their needs into consideration.

One of the most pressing concerns of older people is health care and we could allay some of the fears and hardships of this group by putting some money into their Medisave accounts. There is a place, Mr Speaker, Sir, for this sort of payment for the elderly because they contributed to the national economic growth by investing all their money in their children's education and upbringing. The hon. Member, Mr Chay, has referred to inter-generation equity. Just giving more subsidies for health in general will not be particularly beneficial to the old people. Furthermore, MediShield does not cover people over 65.

Children are our resource and we have happily started the Edusave scheme for them. The aged are our responsibility and we must also allow them a share in the country's prosperity. They do not have a strong voice now but we have prospered by standing on their shoulders. Thus, I strongly feel that we can start an "Old Age Endowment Fund" and use the proceeds of this to top up the Medisave accounts of the elderly. The amount should match the Edusave account. This scheme will offset the effects of the GST on the elderly.

The next point I would like to clarify with the Minister is whether the increased education subsidies given because of GST will be extended to disabled children. These disabled children do not have access to Edusave.

Finally, I would like to make a point about profiteering. Now is the time for us to set the price monitoring agencies in place rather than to wait till after the imposition of GST. Some unscrupulous businessmen will raise prices this year in anticipation of the GST next year. The agencies must start their work this year.

The Minister for Trade and Industry (Mr S. Dhanabalan): Mr Speaker, Sir, the GST is the first tax that will fall on almost every Singaporean. So it is not therefore surprising that reaction is rather negative. Nobody likes to pay taxes. And I think no government introduces taxes just for the fun of it. The GST is new for Singaporeans compared to people in other countries. In most countries you have general import duties and almost the whole population pays tax of one kind or another. We being a free port have never had most of our imports subject to tax and, therefore, the indirect taxes that we have actually fall on a very few items.

The GST, being a tax on the consumption of almost every good and service, is the first tax that we will have which will fall on almost the entire population. If we examine many of the arguments against the tax, I think we can summarise them under three headings.

First of all, there is the question as to whether we need this tax at all, both from the point of view of the timing as well as from the point of view of whether such a tax is necessary at all because there are other sources of revenue in Singapore.

Secondly, those who accept the principle of the tax have grave reservations about the regressive nature of the tax and the measures that have been announced to offset the regressive impact of the tax on the poorer income group.

Lastly, the criticism or misgiving centres around the question of profiteering and the impact of GST on inflation.

I would like to just take these three aspects one at a time. First of all, on the need and timing. It has been argued that Government's financial position is sound, healthy, that we have surpluses every year and, therefore, there is no need for GST and that even if there is a need, there are other sources that the Government should explore and that we should clearly demonstrate that there is a need for additional revenue before we impose GST.

This reservation and criticism have been proffered in spite of the fact that the Finance Minister has said more than once that the GST is not being introduced at this stage to raise additional revenue and that, in fact, in the first five years, the tax deductions, offsets and rebates will exceed the estimated GST that will be collected. Nevertheless, I think we should examine this argument a little deeper.

Under what circumstances will Government need to raise new taxes to raise additional revenue? The first situation will be one when the yield from existing taxes falls. And this, of course, can happen when the economy shrinks because of a recession, incomes are lower, profits of corporations are lower, the taxable base shrinks.

Under such a situation when the Government is facing reduced revenue because the economy is shrinking, to introduce an additional tax would be the height of folly. That would be exactly the time when businesses and people need a boost of maybe a tax cut or some other incentive to promote business rather than a new tax to be loaded on them. And I am sure that those who have argued that we should wait until there is a clear need before a GST is imposed will be the first to argue against the GST when the need arises because the Government revenue is falling.

The second situation under which Government may need additional revenue is when its expenditure has increased to a point where it is not covered by the current taxes and current revenue yields. Such expenditure can increase as a result of Government being put under pressure by the people to increase public services, to increase public subsidies, and all the other things that people look to the state to provide.

To try and raise additional taxes after public expenditure has increased to a point where it cannot be supported by current taxes and current revenue would be really to close the gates after the horses have bolted. We should take action before the situation gets out of hand to ensure that expenditure never increases to a point where we need to increase our taxes in order to meet public expenditure.

Let me elaborate this a little bit more. The GST, as has been pointed out more than once, will change our tax structure. Presently, our direct taxes, that is, taxes on income and corporations, yield 60% of Government tax revenue and indirect taxes yield another 40% of tax revenue. We hope that, through the GST and through reductions of income taxes over the years, we will reach a balance of 50% direct and 50% indirect taxes. But the GST is more than a change in the proportion of direct and indirect taxes. It means an enlargement of the tax base to cover the whole population. And this, of course, is precisely why many people object to the tax. But this is the intention of the tax, and I will explain why it is necessary.

It is important to put in place a light but broad tax at this time when Government finances are sound and there is no need for additional revenue. Because at this time when Government's position is in surplus and there is no need for additional revenue, we can package this broad, light tax in such a way that we can minimise the impact on the lower income group and do all the other necessary adjustments to give away through tax reductions and other measures which are sufficient to offset the revenue from GST.

So this is the right time to do it and the right time to put in place a broad tax. It is only in the present situation that the Government can afford to package the GST in the way that it has. Our direct income taxes, as the Prime Minister has pointed out, fall on a few in the population. In 1991, for example, 10% of the taxpayers accounted for more than three-quarters of all the income taxes collected. Our indirect taxes too are narrowly based. They are basically on petroleum, tobacco, liquor and cars. Our economy has done well over the years. Government has had surpluses year after year and we have a situation where the tax burden is, in fact, very narrowly focused. A few bear the major part of the tax burden which means that a few carry the cost of all public services.

Therefore, there is a great danger that the people may come to believe that Government can provide more and more, either through more Government services or through increased subsidies, and that Government can be pressured to provide more and more without any additional cost to them. There is a dangerous belief prevalent in Singapore that somehow the state is separate from the individuals who compose it. Thus, when the state is asked to pay, there is a belief that somebody, other than the people, will foot the bill. And evidence of this woolly thinking is before us all the time.

In Wednesday's Straits Times, Sir, there is a letter in the Forum page which illustrates this point. An argument was made by the SDP that the less well-off should be taken care of by the state without they even having to ask or compete for it. Sir, it is this kind of soft-headed handout policy that has landed so many of the Western countries in such a mess. There, for years welfare workers have been going around forcing aid on people who were too proud to ask for aid and welfare workers persuaded them that they were entitled to the aid, they should ask for the aid, until we have a situation today where it is considered as an entitlement, a right, an obligation by the Government towards them. I hope that we will never become seduced by these arguments. We should be glad that we still have a people who have a strong sense of responsibility for self, and pride in taking care of their own interest.

The state is made up of individuals and we cannot, by argument, by a sleight of hand, transfer the responsibility from the individual or collection of individuals to some impersonal, unconnected third person called the state. We must, therefore, have a tax system that will make an immediate and direct connection between demands for public service and the private purse. People must know that if Government is asked to provide more, then people must pay more.

Of course, the GST is not intended to be the sole or even the major source of revenue. There will always be other taxes, other sources of revenue which will be very progressive, which will tax the well-off, the rich, more than the poor. The progressive income tax system will remain in place and indirect taxes on petroleum, cars and all the sin taxes - tax on gambling, tobacco, liquor - will still continue to account for the major part of Government revenue. In fact, a rough calculation will show that, going by the figures given by the Finance Minister, the GST will not, in fact, account for more than 10% of the total Government tax revenue. So those in the higher income bracket will continue to bear a disproportionate part of the tax burden.

But the GST is important. There is that component in the tax system which will ensure that every time there is a need to increase tax, everybody bears a part of the increase. And it is important that the Singapore population as a whole realises that public services cannot be increased without everybody having to pay for it. This is the best way to keep a lid on public expenditure. This is an important reason why we want to have the GST in place, a light but broad tax on all goods and services. It is an additional reason to those which have already been given in that, through GST, it is possible to reduce the income tax and corporate tax so that we make Singapore a more attractive place to invest, so that we encourage savings as against consumption, and so on. But a broad, light tax on the entire population is absolutely important and to always keep before the population this message: That you can't get more without paying a part of it.

Let me now come to the regressive aspect of the tax and how the very poor should be assisted to cope with the GST. Government can help the lower income group offset the effects of GST in two alternative ways. One, through the GST system itself, that is, by exempting certain "basic essential" items. Or, two, outside the GST system, by other more direct tax reductions, rebates and grants. We have chosen the second approach. Exempting "essentials" is not only an inefficient way of helping the poor to tide over the GST, but it also creates numerous problems and these are not just theoretical, academic problems. Countries which have introduced GST with a host of exemptions face these problems and are, in fact, seriously examining how they can change the system to make the GST more general with less exemptions.

We have chosen, as I have said, to offset the GST through a system of direct tax reductions, rebates and grants, and not through exemptions. Why? First, essentials are not consumed only by the lower income households. In fact, high income households consume far more of the "essentials" per household per month than lower income households. So exempting or zero-rating essentials will benefit higher income households more than lower income ones. It will also cost the Government much more than it will benefit the lower income households. In other words, the tax forgone by the Government would be far more than the benefit to the lower income households.

The White Paper on GST has explained that on a per household basis, the top 10% of households, that is, the top 10% by income, spend 3 1/2 times more than the lower income households on food which we can assume as essential. Exempting food from GST will, therefore, mean that the top 10% will benefit 3 1/2 times more than the poor. Similarly, the top 10% of households spend eight times more on other items, which many of us will consider as essentials, such as health. If health is exempted, the top 10% will have eight times more benefit than the bottom 10%. This is true for all the other essentials also.

Suppose we define "essentials" as basic foodstuffs, public transport, education and health. These four items form 40% of the consumption of households earning less than $1,500 per month. The total expenditure of these households earning less than $1,500 per month on these four items amounts to $870 million per year. This is derived from the survey on private consumption expenditure. So if we term those who earn less than $1,500 as among the lower income group, they together spend $870 million on these four essential items - food, public transport, education and health. But the total expenditure of all households on these four items is ten times this amount. It is $8.6 billion. If we zero-rate these items and we say that these are essentials that should not be subject to GST, the Government will forgo $260 million of revenue. But only one-tenth of this, that is, $26 million, will go to the lower income groups. All the rest will go as benefits to those earning $1,500 or more, the middle and higher income groups. The fact that the lower income groups get such a small portion of the revenue forgone is not the end of the matter. The Government has to make up this $260 million of revenue forgone. And how does it make up? The GST rate, therefore, cannot remain at 3%. It must go up. And since $260 million is about one-third of the total revenue that is expected from GST, the GST must go up from 3% to, say, 4%. But this 4% will, of course, again have a greater impact on the lower income groups because 60% of the expenditure of the lower income groups is on these "non-essentials". So the more items we exempt, the higher the GST has got to be and the higher the lower income groups will have to pay on the non-exempted items.

Secondly, zero-rating certain goods and services will distort people's spending choices by making some commodities artificially cheaper than others. People want to consume a whole host of goods and services which are important to them and each family decides for itself what is important and what is not important. We cannot, as a Government, put all these into the exemption list. So we have to make choices. For example, if we exempt rice, do we exempt wheat flour? Because if we do not exempt wheat flour, then we are favouring rice against bread. And those who like to eat bread will complain against those who are exempted because they eat rice.

The Government should not be asked to decide what is it that each family should consume or need to consume.

Thirdly, exempting "basic essentials" creates definitional disputes and encourages people to cheat and misdeclare items to benefit from lower or zero-rate items. For example, does exempting rice or wheat flour mean that we should also exempt char siew pau, buns, pastries, biscuits, or confectionery? Or should we only exempt cakes sold in the HDB estates but not cakes sold in Shangri-la? On what basis do we make the differentiation? How do we decide? What should be exempted and what should be zero-rated and what not zero rated?

Compliance and administrative costs for both businesses and tax administrators increase very sharply as we begin to exempt and zero-rate more and more items because we have to keep track of these items. And this will defeat the whole purpose of this GST exercise which is to make our companies more competitive. If companies spend their time on trying to find ways to dodge the tax rather than ways to produce more efficiently what they are doing, then they are directing their resources, energy and interest in the wrong direction.

For all these reasons, Government has chosen to help the lower income households directly through measures outside the GST system. As we have said, we will reduce personal income taxes which will benefit more than one million taxpayers because with the tax rebates, three-quarters of households will not need to pay income tax any more. We will provide rebates for service and conservancy charges for 1-, 2- and 3-room flats and rental rebates for 1- and 2-room HDB flats. We have given property tax rebates for the smaller properties so that the lower income households can benefit.

As a final safety net, we have also promised that we will give a grant to the Citizens' Consultative Committees to help those who do not benefit from all these tax changes and offsets that we have provided.

The cost of all the offsets, when you tot them up, is not large precisely because these measures are well focused on those who really need help. Whereas a general exemption of so-called essentials will cost a lot because it is not focused on those who need the help.

It will not be possible to completely offset the GST for the lower-income groups by zero-rating essentials, because there will always be some items on which they have to pay GST. The only way to ensure that the lower-income groups do not pay any GST will be to zero-rate all that they consume which, in fact, means no GST.

Sir, our way of helping the lower-income households has, in fact, not been plucked out of the air, but something that has been drawn up as a result of studies of the system operating elsewhere. Countries, including Japan, Thailand and New Zealand, which have recently introduced GSTs, have also chosen to have a comprehensive system, like the one that we are adopting in Singapore.

For countries which have introduced GST very early, like Britain, they have a fairly complex exemption system. And many people, including those who are studying the tax system in the UK today with its complicated multiple rates and zero-ratings, have come to the conclusion that it is far better to reform the system by removing all these exemptions and replacing them with a single but lower VAT or GST.

The latest issue of the Economist, if some of you have seen it, has an article making a strong case for a low broad-based GST. The article points out the bizarre anomalies that can arise from exemptions. It quotes an example.

`Side by side on supermarket shelves are chocolate, digestive biscuits (which attract a GST or VAT of 17 1/2%) and Jaffa Cakes (where the VAT is 0%);' Why? Because Jaffa Cake is classed as food and therefore zero-rated; and chocolate and digestive biscuits are classed as snacks which I assume you eat while you are watching TV, therefore, you pay 17 1/2%. It is completely arbitrary. These exemptions have inevitably led to higher costs for everybody, and quarrels over precisely which items should be exempt and how much and when. It ends up with a lot of cheating and without much benefit for whom it was intended.

The third fear or criticism of the GST is one that centres around inflation and profiteering. Sir, with your permission, may I ask the Clerk to distribute the Table (Cols. 1645 - 1646) that I have given to him? [Copies of Table distributed to hon. Members.] Table - COMPUTATION OF PRICE INCREASES USING 1990 PRIVATE CONSUMPTION EXPENDITURE (PCE) DATA (Cols. 1645 - 1646)

Sir, we can make a broad estimate of the impact of GST on the total economy. My view is that there is little to fear from profiteering and inflation for many reasons. One reason is that the actual impact of GST on the total economy is, in fact, less than the 3% GST. The Department of Statistics has estimated that even if companies pass on the full 3% GST to consumers, the total impact on the economy should not be more than 2%

I have given a handout. Let me just run through the handout very quickly to explain what it is all about. This, as I said, shows the impact on the total economy. First of all, the gross private consumption expenditure. This excludes the expenditure by tourists on various items on which they do not pay cess. This is just the local private consumption expenditure. This is $32,948 million. Not all of this expenditure is subject to GST. We must deduct those types of expenditures which the Finance Minister has already exempted from GST and these will be the financial services, rental on housing and so on. When we exclude all these, there is a net private consumption expenditure of $28,168 million. This private consumption expenditure is on all establishments, big and small. And we know that establishments with a turnover of less than $1 million per year will be exempted from GST. If we estimate that these small establishments account for 10% of the total value added in Singapore, then the effective rate is, in fact, on only 90% of the value added. That means GST on 90% of the net private consumption expenditure. So we apply the 3% on 90% of net private expenditure and get the GST of $760 million. That is the GST collected.

But in the process of imposing this 3% GST, we are giving away, by way of indirect tax reductions, a total sum of $162 million, because adjustments have been made for indirect taxes, PUB tax, telephone tax, entertainment duties, petrol duties and so on, and those have been offset by the GST. So we have to take that out because that is not an additional expenditure. It is already there in the system and that is $162 million, giving a net revenue of $598 million. If you apply that on the gross private consumption expenditure, we get 1.8% effective GST. This, as I have said and I must emphasise, is the total picture. But it is an important element in trying to assess what is the impact of GST on the total economy. Of course, in some cases, prices may increase more because of rounding off. In other cases, prices may not increase at all because companies may decide to absorb a part of it because of reduced income taxes or because of competitive position in the market.

We are not the first country in the world to impose GST. Every country where GST has been imposed has gone through this process of price adjustments. Studies have been made on the impact of GST on overall inflation. In most of the cases, the impact of GST is much less than the GST rate. In other words, if the GST is 3%, the GST contribution to the inflation rate is less than 3%. And there is no reason to believe that we will be different. We have strong institutional measures to check profiteering and the impact should be less. As I have pointed out before, there is no reason to assume there will be profiteering. Profiteering is a term that is used when people hoard and extract obscene profits because of a shortage. There is no shortage. In fact, we now live in a world which has an over-supply of the essential commodities that we consume. We do not also have a situation where suppliers can get together to form a monopoly or a cartel. We have a situation where there are many independent suppliers and the chances of them ganging up are very small. Far from it, I think they will compete furiously one against another.

If necessary, as we did during the Gulf War, we can increase the supply of essential items and flood the market with essential goods through NTUC Fairprice and other such organisations. This will undermine any cartel and prevent it from making unfair profits at the expense of the public.

MTI will monitor the prices, as Dr Soin has suggested. We should, of course, monitor it right from now and will ensure that steps are taken and measures are put in place for adequate supplies to be in Singapore when the GST is introduced.

We can also, of course, organise consumer groups and clubs which will help advise the public on the cheapest outlets. We can enlist the assistance of CASE and help CASE to monitor prices and publicise those retailers who profiteer. I think consumers must learn to support CASE, must learn to organise themselves. I know that many of our Backbenchers here will be organising groups within their constituencies to monitor and to keep consumers informed and to put pressure on those who increase prices unfairly.

Lastly, and I would say that this is the the very last type of measure the Government should consider, as Dr Ow has already pointed out, price control is not a good way to proceed, the Government does have powers to be tough on those who blatantly profiteer. And in extreme cases, we can revoke their Government licences or permits to operate. For example, we can revoke a hawker's licence if a hawker is found to be increasing his prices unfairly. And as Dr Ow pointed out, perhaps we should be ruthless in picking a few who profiteer and making them an example to frighten the rest.

We can, of course, use the Price Control Act, but I will be very loath to resort to this. Because this is not the best way to ensure that prices do not go up in a situation where basically there are many suppliers who compete with each other. The best solution is still the free market. It will be far easier for the consumers to boycott any company which charges more and by such boycott bring prices down rather than use the Price Control Act.

Sir, to summarise, now is the right time for GST. Government finances are healthy. We can afford to offset and help the lower-income group. There is a need now to put in place a system of taxes which affect all but very lightly, so that if Government revenues have to be increased as a result of pressures to increase subsidies and services, everybody will know that they have to pay a part of it. It is important for Singaporeans to realise that. Secondly, Sir, tax reductions, offsets and rebates are focused on those who really need help and are more than sufficient to compensate for the GST. Lastly, Sir, in our system, there is little danger of inflation or profiteering.

Mr Low Thia Khiang: Clarifications for the Minister, Sir. First, does the Government need to increase the GST rate under the unfavourable situation when it arises which the Minister described just now, even if the GST is imposed now?

Second, does the Minister agree that when the GST rate needs to be increased under that situation, the impact would be not much different regardless of whether the GST is imposed now or later? Third, the Government's measures to help the lower-income group will decline in value. What is the Minister's assessment of its effect on the lower-income group when these measures become zero effect and when this cushion becomes hard?

As regards the Table on private consumption expenditure, is it based on current price? And is it factored into the computation that when these prices increase the expenditure will also increase correspondingly?

Mr Dhanabalan: Mr Speaker, Sir, I am not sure whether I understand the first two questions. I think the question is if a situation arises where the Government expenditure increases to a point where additional taxes have to be imposed, will GST be increased? I thought that was the whole burden of my statement. So I do not understand how the question arises.

Mr Low Thia Khiang: What is the difference if you impose now or later, because you still need to increase, and the impact will still be there.

Mr Dhanabalan: If it needs to be increased to 4% because of the situation I have described, it will have to be increased to 4%. I think there is some misunderstanding about what I have stated. Secondly, the figures I gave on the private consumption expenditure, of course, is before GST.

Mr Speaker: Order. Mr Low, when you rise on a point of clarification, it is to seek clarification on something which the Minister has said in his speech which you may not understand. But when you rise on a point of clarification, you may not seek to introduce new material into the debate. Yes, Mr Chay.

Mr Chay Wai Chuen: Sir, I would like to rise on a point of clarification. Just now, it was mentioned by the Opposition Member for Potong Pasir that we do not need business investments because the banks are flooded with cash. Maybe he does not understand that in the context of this debate, a reduction in the corporate tax will lead to greater investments which can give a greater value-added, noting the fact that there is now a much reduced rate of growth in our GDP. The second point, Sir---

Mr Speaker: Mr Chay, you are making a speech.

Mr Chay Wai Chuen: No, Sir. I want to clarify two points. The other point is ---

Mr Speaker: What do you wish to clarify? Mr Chiam is not here.

Mr Chay Wai Chuen: No, it is regarding the point made by the Opposition Member for Hougang, Mr Low.

Mr Speaker: What is it in Mr Low's speech that you want to clarify?

Mr Chay Wai Chuen: It is regarding a table that he presented just now. May I clarify?

Mr Speaker: All right.

Mr Chay Wai Chuen: Thank you, Sir, for giving me this chance. It took me a little bit of time to realise that somehow the logic in his table is not correct. So I would like to clarify. First, the Member mentioned that there would be an increase of 209.91% if there was a GST on the Polytechnic tuition fee as compared to a fee of $420 in 1983. He has worked out two figures, one is $660 when there is no GST, and another is $881.63 when there is GST. He came to the figure of 209% by dividing $881 by $420. I think this is wrong. First, if he wants to compare the GST system to a system without GST, then he must compare like with like. That means he must compare the increase of $881.63 to the figure of $660, which comes to an increase of 33%, not 209%.

The second point is this. He cannot work backward to impute into a GST system for the past years when there was, in fact, no GST system. If he were to do that, then I would say the PAP Government will be much wiser. They would not have increased the fee so much. They would have reduced the base. Then he would not have compounded it.

Mr Low Thia Khiang: Sir, may I clarify.

Mr Speaker: All right.

Mr Low Thia Khiang: Mr Chay says that I should not minus out and compute the difference. He will see the difference of percentage increase over the years is 52.77%. My point is this. The percentage increrase of 157% is the comparison between a situation with GST and without GST. There is a difference.

Some hon. Members: They are all wrong.

Mr Low Thia Khiang: It is correct.

The Minister for Labour (Dr Lee Boon Yang): Mr Speaker, Sir, I am not trying to clarify anything. I just want to point out to the Nominated Member who said earlier on that the CPF MediShield programme does not cover members beyond the age of 65. In fact, since July last year, CPF MediShield has extended coverage to those aged up to 70.

The Minister of State for Finance (Cdre (Res) Teo Chee Hean): Mr Speaker, Sir, a point of clarification on what Mr Low and Mr Chay have said. Mr Low is wrong. Mr Chay is only partially correct. What Mr Low has done is to compound the 3% GST each year, which is obviously not the correct way of calculating. There are some tables being prepared which the Minister for Finance will be glad to distribute to Members later and, I am sure, they will clarify the whole situation.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.15 pm.

Sitting accordingly suspended at 2.50 pm until 3.15 pm. Sitting resumed at 3.15 pm

[Mr Speaker in the Chair]

Debate resumed.

Mr Koo Tsai Kee (Tanjong Pagar GRC): Mr Speaker, Sir, I rise to support the Bill.

Sir, when the GPC Chairman for Finance, Trade and Industry first asked me last week whether I would like to speak today, I told him "no", because what should be spoken today had already been spoken in the first two days of the debate on the Budget Statement. But then a few days later when Dr Ow asked me one more time, I changed my mind, and I said "yes".

What prompted me to change my mind? Three events: First, a report in The New Paper; second, Dr Wang Kai Yuen's speech; and third, the Australian election which was fought on the basis of the GST. And sitting there during the first part of this session, two more reasons came out - Mr Chiam See Tong and Mr Low Thia Khiang.

Sir, Mr Chiam See Tong accused the PAP of being dishonourable because the party did not announce the GST in the Marine Parade by-election. But, in fact, the GST Bill was first mooted in this House, I believe, way back in 1986. I read the Hansard all the way back to 1986. I do not know whether he was already in this House then. But, in any case, in last year's parliamentary debate, I was here - I was just elected an MP - I remember the Minister for Finance said it loudly and clearly that a White Paper on GST was being prepared. That was in March 1992. So he knew it was coming. He did not exploit the issue, he did not make an issue of it during the by-election. Now he comes back and accuses us. And he tried to align himself with Dr Hewson, saying that although they lost, they lost honourably. I do not think he is in the same league as Dr Hewson. Dr Hewson was one of my teachers in economics in New South Wales. I think Mr Chiam should not align himself with such towering figure.

Mr Chiam also accused the labour MPs (myself and my colleagues in this House) of not fighting for the workers. He claims that by endorsing the GST, we are betraying our workers -rubbish! In fact, during the process of GST, the NTUC, particularly the Secretary-General, made many representations, both formal and informal, to the Government to come out with this package.

Our primary concern is about jobs, and I will come back to that later on. We are assured that with the compensation packages being given out, our workers' interests are protected in the short term. In the long term, their jobs are secure vis-a-vis jobs in the neighbouring countries, including those further afield. Mr Chiam wants to open the angle of helping the poor. He is replaying his drama of politics of envy. He claims that we do not help the workers. The GST will be regressive. The poor will bear an undue weight of the burden. In fact, there is no need for me to answer now because Mr Dhanabalan had earlier on answered it very comprehensively.

But it is difficult for the people, the lay persons in the street, to understand a subject as technical as the GST. In fact, The New Paper reported that a significant majority does not understand the mechanics of GST, other than playing with the acronym - Goh Says Tax - and all the acronyms. But GST is a serious matter, it is more than just playing with the acronym "GST". If the person in the street does not understand it, then perhaps Members in this House had not done enough to relay the message. Beyond these four walls, I think the message of GST - competitiveness linked with job creation - must reverberate beyond the walls of this Chamber and impact on the person who will suffer most if he or she does not understand what it is for him or her. That is the reason why I am speaking out today. I am repeating some points but I think it is important, and I will repeat it in different ways to different people in different places. That is why I have no script today because I just jot down some points and I think it is better this way - in a conversational format, instead of I being accused of giving lectures in previous parliamentary speeches.

But if the Members of this House have not worked hard enough because people outside still do not know, the media is at fault. The media reports the GST in a very technical way. People are all confused. I think the media must take a position. BG George Yeo said the media is neither pro-PAP nor pro-SDP, they are pro-Singapore. Let us put them to the test. If they are for Singapore, they must be for the GST, because GST is about creating jobs. I think the press is caught in the middle. They report the GST in a technical form, as a news item, but there are not many opinions as to whether GST is good for Singapore. I think we should read more about the GST. And I want to say something about the media in Australia, how they played up or played down the GST. I think history will judge us not according to how eloquently we have delivered speeches here. History will judge us by how we have supported this Bill, because this represents a turning point, a watershed, or in the PM's words, a "landmark" budget.

I come to Dr Wang's concerns. I think his concerns are genuine. He claims that if there was an inflation rate of between 4% and 7%, averaging at 5%, then all the GST gains would be wiped out. First, I think Dr Wang is a bit too pessimistic. He assumes the post GST inflation will be over 3%. In fact, study after study have shown that if the GST were implemented and thought out carefully, the impact on inflation is very negative, very minimal. In fact, I would quote him a study by Tait who wrote in a book on "VAT Revenue, Inflation and the Foreign Trade Balance". In the book there is a paper by Gillis who has studied the impact of the VAT on 35 countries, and he found that in 22 countries VAT contributed to no rise in inflation. In fact, in Taiwan and Korea, the CPI went down.

Taiwan is an interesting case. Taiwan has got a huge hawker economy, huge underground economy, the economy that does not pay formal taxes. If they could implement the GST successfully, and the CPI went down, then surely we will do it. A significant portion of the Taiwanese income goes towards eating out at hawker places or entertaining themselves in places which do not pay formal taxes. Our Singaporeans are worried that if they go to the hawker, the hawker will raise the prices unnecessarily, thereby negating the effects of the GST, or, worse, if the GST bears an undue burden on them. I think the Taiwan example is a very good reassurance.

In any case, the NTUC has made an assurance. The Secretary-General, Mr Ong Teng Cheong, has assured Singaporeans that NTUC FairPrice will serve as a reference point. So post GST, all items displayed and sold in NTUC FairPrice will not be 3% more than their previous prices.

Sir, the problem is not inflation, as Dr Wang has worried about. The problem is actually unemployment. Can I ask the Clerk of Parliament to distribute one very simple set of table? [Copies of table distributed to hon. Members.] We keep telling ourselves we are the best NIE, we are the number one NIE, and then we are crossing the Rubicon into the league of the OECD. The moment we go from NIE to OECD, the problem of unemployment becomes more serious than the problem of inflation. You look at this simple table here. The first column shows the GST of the G-7 countries and Singapore. With the exception of USA which has an equivalent of the GST - a retail sales tax - all of them have some kind of a GST. You look at the second column - Inflation. You see all of the G-7 countries have low inflation. With the exception of Italy, all of them are lower than 4%. So inflation is not a problem. You look at the third column - Unemployment. That is the real problem. The unemployment is so high. In Canada - 11%; in France - 10.5%; Britain - 10.6%; Japan is the best - 2.3%. Our unemployment, based on the statistics last year, is about 2.7%. So it is still very manageable.

Our problem is that as our GDP improves but slows down, we are creeping towards the unemployment pattern of OECD countries. Unemployment might creep up. In order to slow down this problem, I think the GST would give us a few more years of leeway to maintain a low unemployment rate while capping inflation. Even if our inflation were to go up from the present 2.3% to 4-5%, so long as our people have jobs, I think the problem is not serious.

Dr Wang's concern about inflation is sincere but misplaced. Because as a labour MP, I am more concerned about unemployment. If I have money, I do not mind paying some. But if I have no money, how to pay?

I come to the Australian election. I watch developments in Australia quite closely because I spent four good years there, and some of my very close friends are Australians or Malaysians, and Singaporeans who have moved there temporarily. Australia has been riding a roller coaster all the way down from a rich country to a not-so-rich country, but still not a poor country. Part of the reason is welfarism. Mr Chiam See Tong studied in New Zealand. I think in the early years he must have drunk the milk of welfarism there early. But he did not wean himself out of it. The main problem of New Zealand is welfare. So they keep upping their taxes. Mr Chiam is not here. He quoted Sweden. He said Sweden started with 3%, and then the GST rate went up to 24%. He is wrong, actually it is 25%. It is 25% now. The reason why Sweden's GST kept going up was that people wanted more and more. So the same government kept giving more and more to them. They raised the GST all the way from 3%, which is true, to 25%.

This is what the PAP Government is trying not to do, trying to put a cap on welfarism, while maintaining that the lower income groups have a decent living, and keeping the tax base broad and the tax rate low.

Australia has no formal GST system but already it collects something like 28% of its taxes on goods and services. So it has got a tax system that taxes consumption but not on every small item. It is for 28%. You look at Japan. Japan has a formal GST system of 3% and the tax contributed by indirect taxes forms only 12.6% of the GDP, which is lower than Australia's 28%. So, in fact, Australia has really a GST equivalent in place. The media in Australia did not help to clarify a very complicated issue. The media in the West is also part of the problem. They have become an arbiter of welfarism. They have become more and more compassionate, more and more sympathetic. So they talk about exemptions, talk about helping the lower-income groups - which is right - talk about helping the retirees, helping the poor. But we must not lose sight of the broader perspective. I believe it is the press' duty to put the whole issue into perspective, lift the people from the ground and see the whole thing from a helicopter position. In Australia, the GST debated in the last week of the election were on things like, "Will my son and daughter's birthday cakes be exempted from GST?" "Will my son's lollipop be exempted from GST?" All these are human stories. Channels 7 and 9 picked it up, dramatised it and placed it in the home every day. People got worried. Unemployment, the main issue, was kept locked away. The real problem was not given the right focus. I hope that in Singapore, the newspaper must take a stand, lift the people beyond the horizon and help them see light.

I want to summarise by saying that GST is about competitiveness but that is a very technical term. Many workers do not understand. I prefer to link the GST with jobs. Last month, an incident happened between France and UK which went unnoticed in the Straits Times. I think there was a short write-up. It was the quarrel between France and UK over the relocation of Hoover, the vacuum cleaner manufacturer, which relocated its plant from a place in France called Dijon to Glasgow. Because of the relocation, France lost 650 jobs and 400 were created in Scotland. Why did Hoover move over from France to Scotland? Because wage taxes in France were much higher so Hoover made its own calculation, "Well, we might as well move." There was relocation cost but, in the long run, it was going to be better off. So just for a few dollars more, Hoover moved, across the Straits, went up north and all the way to Glasgow.

In Singapore, if our economy is no longer competitive, more factories, like Hoover, will move across the Straits to Johor, Batam, or elsewhere. By having the GST and lowering the corporate tax, we hope that this day of reckoning can be pushed further back and in the meantime we will buy some time for restructuring our tax system.

Mr Speaker, Sir, let me now clarify a few points about what Mr Chiam See Tong said. Mr Chiam See Tong said that the GST impacts on foreign workers also. So he is championing foreign workers and, he said that by championing foreign workers, he is also championing our lower income Singaporeans. And so he again recommends that the foreign workers' levy should be reduced. In fact, Mr Ling How Doong also made that point some days ago. My colleague, Mr Goh Chee Wee, has already said that if you lower the foreign workers' levy, you are actually depressing the wages of our workers. So he is a bit confused. He wants to champion the poor but he wants to take money away from them, making them even poorer. I cannot figure it out.

Mr Low Thia Khiang's table should not be read. It should be discarded. The basic assumption is wrong. He is imputing his figures all the way back to 1983. You cannot do that.

Mr Low Thia Khiang: Can I clarify?

Mr Koo Tsai Kee: It is up to the Speaker. I have no right to allow you.

Mr Speaker: Do you want to give way to him?

Mr Koo Tsai Kee: All right.

Mr Low Thia Khiang: Sir, now I understand why some Members think I am wrong. They think that the figures were based on the price increase together with GST, and I did not separate them. They are assuming that when price increases, the increased price should be separate from the GST. This means that the calculation should minus the 3% GST, and take the original price and increase from there. But, in actual fact, when a shop or organisation increases the price, it will add the increase to the existing price, which comprises GST, and the fact remains that the higher the price, the more GST Government will collect.

Mr Koo Tsai Kee: Sir, we are more confused now. But, basically, I have one message: throw away that sheet of paper.

Dr Wang Kai Yuen rose ---

Mr Speaker: Order. Mr Koo, do you want to give way to Dr Wang?

Mr Koo Tsai Kee: Yes.

Dr Wang Kai Yuen: Thank you, Sir. I too would like to seek a clarification from Mr Koo. He has used my speech as one of the reasons for his coming out to speak but, given his eloquence, he does not need my excuse. But, anyway, he has handed out a table, and I appreciate Members handing out tables. However, from the numbers he has given in the table, the only correlation I can tell is that high GST means high unemployment, given the fact that everything being equal. I would appreciate it if he could explain further why he hands out such numbers.

Mr Koo Tsai Kee: Do I have time? As I said earlier on, we are trying to take the leap from NIE into OECD. If we go there, these will be the problems. Why is it that, in the first column, he claims that high GST is co-related to high unemployment? In fact, this list of GST has already been scaled down. Over several years, with the exception of the introduction of GST in Canada, the GST of other countries has actually come down, and unemployment came about because they did not react in time. Many of the GST packages are poorly packaged, like the example given by Mr Dhanabalan and the example quoted in the Economist. So, on paper, Britain has a GST of 17.5% but, in reality, the tax burden falls unevenly. It does not uniformly fall across. In fact, there are other examples but maybe I just use one example. When I was in UK, I did some gardening. I needed an axe. To avoid the VAT, I went to one hardware shop and bought the handle, VAT-free, zero-rated. I went to another shop and bought the axe head because it is a replacement part. You go home, you fix them together, so you have got the whole axe VAT-free. The point I am saying is that the GST rates are high, but they should not be. If they have a system which is more broad-based, the GST rate will come down.

Anyway, Sir, I would like to end by saying that I support the GST and I want to make one final point. People have told me many times that there is no need to support the Government on the GST because we have got top Ministers, like Mr Dhanabalan and Dr Richard Hu, who are well-equipped to do the explaining. I am not supporting the GST because I need to help the Government to defend. I am supporting the GST because I am defending my workers' interests. I am defending my family's interests because I hope that jobs will stay with them for as long as there is Singapore.

Mr Chew Heng Ching (Eunos GRC): Sir, I see from your facial expression that you are getting impatient. I shall, therefore, make my remarks short.

Mr Speaker: Far from it. I have not had the opportunity to ask anyone to finish his speech.

Mr Chew Heng Ching: Sir, this GST concept has been very enthusiastically debated in the House earlier last week and today. Fellow Members have more than adequately voiced their concerns and apprehensions of Singaporeans generally. The Hon. Minister for Finance and also the Minister for Trade and Industry have, in the process, verified many queries and have also agreed to refer the GST Bill to a Select Committee for further refinement.

Sir, enough has been said and said again. I will not delve further on this except to add that I fully support the concept of GST which will restructure our taxation system, making Singapore more competitive and bring long-term benefits to all.

Sir, I must applaud the Hon. Minister for so timely initiating a comprehensive tax restructure all within a very short space of time. Unlike the implementation of the COE and time-based telephone charges, the GST will affect all and spare none. Thus, the Minister has indeed done very well as he has started to publicise and explain the GST concept a year ahead of its implementation through the media, the press, SBC, forums and dialogues.

Sir, to the literate, to those who read the newspapers, who listen to SBC news and who attend GST forums, or those who bother to pick up a leaflet explaining the GST, they would already by now more or less have understood the concept of GST and how it works. Even if the number in this category is large, but so long as there are some Singaporeans who are not in this category, the Government has a duty to continue to explain the GST to them because GST will affect them. In other words, the reaching-out process to explain to Singaporeans should continue in as much gusto and fervour as it has started all the way until its implementation and beyond so that the fussy Singaporeans among us cannot say that they have no opportunity to ask questions or to seek clarifications and answers.

Sir, officers from the Ministry of Finance and the Inland Revenue Authority of Singapore should continue to go all out to the field, to the constituencies, to the ground, to field the people's queries and answer and explain to them. And it is important that this reaching-out process should continue beyond, until the GST is implemented. Rebates for property tax and conservancy charges and other benefits have been designed to cushion the impact of GST, particularly on the lower income groups. I understand from my grassroots and community leaders that, to date, a large proportion of these lower income residents are still ignorant of the mechanics of GST. We should let them know that these benefits are to cushion the impact of GST, so that when GST is implemented 12 months from now, Singaporeans will remember fresh in their minds that these benefits are meant to negate the effects of GST.

Sir, it appears to me, and is confirmed at today's sitting, that the difficulty of understanding the GST is because it involves too much arithmetic. Those who are unable to calculate correctly have found themselves desperately lost in their attempts to try to appreciate the full impact of GST and are swayed by the politically dishonest to believe that GST is, indeed, a grievous shock tax. The would-be profiteers who can correctly calculate but prefer to take advantage of other people's confusion deliberately miscalculate and, when questioned, put the blame on the Government.

Sir, I come to the example brought up by Mr Low Thia Khiang. I respect Mr Low as a man of high intellectual powers. But if a person, like Mr Low, could not understand the full complexity and the issue of GST, what more do we expect from the man-in-the-street? Sir, as an example, the error in the computation of the table which Mr Low has presented has been explained by the Minister of State for Finance and I would not explain that. He brought up the wrong example. He quoted polytechnic fee increase. But the Minister had made it clear in his Budget Statement that Government would absorb whatever GST there was on educational institutions run by the Government through greater grants, so that the impact on the students would be neutral. This message has certainly not gone to Mr Low.

Mr Low Thia Khiang: No, I am using it as an example. That is all.

Mr Chew Heng Ching: This is a wrong example. You cannot use this because, factually, it is wrong. Sir, I want to repeat that this reaching-out process has to continue. The job is not over. In fact, it has just begun. Only then will the true value of the GST and the effect of the cushion in the packages be fully appreciated by Singaporeans. Let GST be discussed and worked out now by the people themselves with the Government and with the Inland Revenue people in close attendance, ever ready to explain and to help Singaporeans accept it as our taxation system and as our way of life.

Sir, it is here where I think our grassroots leaders and we, as MPs, could play a useful role in trying to reach out to fellow Singaporeans to explain the GST. And I am sure all of us will do our part in due course. And who knows, through all these continued discussions and dialogues, the GST could be further improved and tailored to include practical and workable suggestions from Singaporeans and still achieve its objective of restructuring our tax system for a more prosperous Singapore.

Sir, I support the Bill. 3.45 pm

Mr Ling How Doong (Bukit Gombak): Mr Speaker, Sir, I maintain the position I adopted when I spoke at the Budget debate.

There are a number of reasons why I am not in favour of GST. Firstly, it is the timing; secondly, is the fact that we have, in practice, a number of indirect GSTs. I cited examples like diesel tax where the taxi driver has to pass on to the passengers. So they are paying a tax. Because of the diesel levy, the fare has to be increased. The other one is the ad valorem duty on petrol. This is also an indirect GST. COE and the foreign worker and maid levies are also indirect taxes, because when you impose a levy on foreign workers, invariably, the cost of manufacture or construction goes up. So, ultimately, the manufacturer would pass on to the consumer. Indirectly, it is a GST. Perhaps I would like to reply to Mr Goh Chee Wai and Mr Koo Tsai Kee who mentioned the fact that ---

An hon. Member: Mr Goh Chee Wee.

Mr Ling How Doong: Yes, Mr Goh Chee Wee. Both of them seem to mention the fact that if we do not impose a levy, it will cause the depression of wages of the locals here. I disagree with this. Why are we having foreign workers and maids here? Because of shortage of labour. Why is there a shortage of labour? Because these foreign workers and maids are here to fill vacancies shunned by locals. They are here in substitution of and not in competition with local workers here. How could the levy cause depression of wages of local workers here?

The next point: it is not as if foreign workers just come in at random and in any numbers. I thought it is the policy of the Government to regulate and to admit the foreign workers according to local demand. It is only in the sectors where there are no takers that foreign workers are being admitted here. So how could it depress the wages of the local workers here? I do not understand the logic behind all this. Furthermore, I also do not follow the logic of the argument that only the levy can control the influx of workers. It is not true. You can have regulations, you can have rules and you can actually restrict the number of workers coming here without the levy. You could, in fact, insist on the employer or the manufacturer to prove to the satisfaction of the Government that they require these workers and there are no local takers. I fail to understand the logic that it is going to depress the wages of the locals here.

Next, the hon. Member, Mr Koo Tsai Kee, mentioned the fact that the GST will create jobs, but he has not cited any examples how it will create jobs. But I know one thing for sure. It would create jobs because with the GST, the manufacturers and construction companies would have to engage more staff to service the GST. That is one thing for sure, it will create jobs.

Dr Tan Cheng Bock (Ayer Rajah): Sir, the Member mentioned about timing. He says he objects to GST because of the timing. He has not elaborated on it. I want to know when is a good time.

Mr Ling How Doong: I mentioned it in my speech in the budget debate. I mentioned the fact that we now have good reserves and all the budgetary surpluses every year. That is the reason why I say the timing is wrong. We could afford maybe to wait until later on to introduce the GST.

An hon. Member: When?

Mr Ling How Doong: How could I tell you when? It depends. Invariably, it must depend on our economy, is it not? Of course, we have to depend on how our economy advances in future, whether we are able to continue to amass surpluses and also continue to have budgetary surpluses every year. It must be dependent on all these factors.

Mr Goh Chee Wee: Mr Speaker, Sir, I am really disappointed and very sad that Mr Ding does not seem to have any feelings at all.

An hon. Member: Mr Ling.

Mr Goh Chee Wee: Yes, Mr Ling How Doong has no feelings at all for the Singaporean workers. Let me ask him a very simple question. Does he employ clerks, for instance? Or any employee?

Mr Ling How Doong: My staff are all locals, no foreigner.

Mr Goh Chee Wee: If I offer you a Filipino clerk for $200, would you take her or him?

Mr Ling How Doong: The answer is a very simple one. This can be regulated by the Government. As I said earlier, the Government should only allow vacancies where there are no takers at all. If you have clerks who are available locally, the Government should not allow foreigners to fill up the vacancies when you have local takers.

Mr Goh Chee Wee: As he knows, the employers are asking for the liberalisation of foreign workers. Not only do they want workers from Malaysia, they also want workers from China and the Philippines. I gave an example yesterday of the retailers and department stores asking the Government to liberalise the import of foreign workers. They said that Malaysian workers are too expensive. They want Filipino workers. They want Chinese workers. Imagine if we allow these workers to come in, they are prepared to accept a wage of $200-$300. Do you not think the wage of Singaporean workers will also go down to $300? It is as simple as that.

Mr Ling How Doong: Sir, as I stated earlier, it is simply this. The Government can control the influx through necessity. In other words, the particular sector must prove to the Government that it has tried and is unable to get local workers. Where is the competition? Where is the depression in wages? It is just not possible, because there are no takers, as I mentioned earlier.

Dr Lee Boon Yang: Mr Speaker, Sir, I think Mr Ling is being rather simplistic in his approach to managing the pool of foreign workers in Singapore. He assumes that Government can just regulate and say employers must show that they have not been able to get Singaporean workers. The point here is that if you allow foreign workers in Singapore - bear in mind that these foreign workers are prepared to work for a very low wage - then what is there to stop employers from advertising for jobs at, say, $200 a month. And no Singaporean will apply for such jobs, because no one will work for $200 a month. After a period of time, they show the Government, "Look, I have put so many advertisements for workers, $200 a month, nobody turned up. I have got no applicants." How is the Government going to be in a position to judge whether the employer has offered a fair deal in this sense? In fact, he can get a foreign worker at $200 a month. So we need a levy to bridge the gap between the wages of our workers and the workers from the low-wage countries which are supplying the foreign workers in Singapore, rather than to try to have a system where Government has to go into every businessman's, every employer's operations and say, "For this particular job, I think you should employ a Singaporean, whereas for the other job, we will allow a foreign worker." We prefer to adopt a system of control on a global basis, in the sense that if you are able to pay a certain levy, you must extract more value added than the levy and the wage of the foreign worker and you will pay accordingly. You employ foreign workers only if you can get that value added.

The Member's suggestion would just simply not work in practice. It will only result in depressing the wages of Singapore workers, particularly, as I said yesterday, those at the lower end of the skill ladder.

Mr Ling How Doong: Sir, it would appear that most of them are under the impression that the only way of control is by levy. What I am saying is that you could even control by way of regulations, not necessarily by levy. For example, I thought it is in practice now that in certain industries there has to be a worker ratio of two or three foreigners to one local. That is one way of regulating the whole thing. My argument here is that besides the levy, you can control the influx of workers.

Dr Lee Boon Yang: It is precisely because in many industries where we allow foreign workers to take on jobs and there are also Singaporeans who are doing those jobs that we need a levy. Take, for instance, the construction industry. We allow five foreign workers for every one local worker. And if we do not have a levy, can you imagine what will be the wages of that single Singaporean worker in that company? It is because of a levy that the Singapore worker is able to earn a viable wage to live in Singapore. Otherwise, without the levy, that poor lone Singapore worker will have to live on a salary which is paid to a foreign worker, ie, $300 or $400, instead of a salary of maybe $700 to $1,000. The same thing applies in many other sectors. It is because there are Singaporeans doing these jobs, similar jobs as what the foreign workers are doing, that they need to be protected from the workers from low-wage countries.

Mr Cheo Chai Chen (Nee Soon Central): ( In Mandarin): Mr Speaker, Sir, I reiterate my opposition to the implementation of the GST from next year. We are living in a world of contradictions. When we do something, we will discover that it will bring us benefits and at the same time disadvantages. Similarly, when the Government implements a certain policy, it has the same problem. Undeniably, the GST will bring some good things and some bad things at the same time. So in deciding this, we should be very careful.