GOODS AND SERVICES TAX BILL

Debate resumed.

Mr Cheo Chai Chen: ( In Mandarin): Mr Speaker, Sir, I was saying that GST will bring good things and bad things at the same time. So we have to be very careful before we make a decision. First of all, we must determine whether it is necessary. Secondly, we have also to consider and be very clear in our minds what is our emphasis. Do we want to help the rich or do we want to help the poor, the lower-income group or the middle-income group first? Next, we should also consider whether the good points of this policy will outweigh its bad points. Briefly, my point here is this:

First, whether it is necessary. The implementation of GST, of course, is to collect taxes. If not, why do you want to impose a tax? The Minister for Finance said that when the Government implements the GST, it is for the purpose of tax restructuring to attract foreign investments and to encourage entrepreneurship and for more people to work harder. I think the reasons given are not convincing.

Sir, we have a lot of reserves in our coffers. Is it really necessary to impose GST? The answer is very clear. It is absolutely not necessary. Furthermore, we have already some items which are subjected to indirect taxes similar to GST. Second, what is our emphasis? Are we helping the poor and the lower income group, or are we increasing their burden? On the face of it, GST is universal to everybody, it appears to be very fair. It is applicable to everybody. But if we look deep into it, we will discover that it is not so. Because the GST will increase prices. To the rich people, price increases will have less impact on them because they have extra money to meet such a problem. Furthermore, they are rich people. They are able to make enough money to offset whatever impact these may be. If you are a businessman, you can easily increase your charges for services or goods to offset the increase in taxes. But to the worker, the salaried people, the lower income group and those old people who have no income, they will have no way to escape. It is like adding fuel to fire. So if the emphasis of the Government is to make this lower income group suffer more, then it is obviously wrong! I do not believe that it is the intention of the Government to do so. The Government has announced that when GST is implemented, certain measures will be taken to help the lower income group, such as the payment of Service and Conservancy (S&C) charges, tax rebates and so on. Such measures and assistance, I believe, are only short term because the subsidy will change according to the economic performance. But the GST impact is long term, irrespective of the performance of the economy. People will still have to pay GST in any circumstances. In future, it may very well be increased from 3% to a greater percentage. That nobody knows! So if we want to get more tax revenue or income from the GST and at the same time give rebates for S&C charges and income tax, then that is totally superfluous.

Third, whether the good points outweigh the bad points of GST. Countries which have implemented GST are mostly welfare states, or countries which have serious tax deficits or are facing war crisis. Singapore is not a country that subscribes to welfarism. Our country always has surpluses. We do not face a war crisis of any kind. From these three points of view, we can say that the bad points of GST will outweigh the good points.

Here, let me deal with the bad points. I will only talk about the bad points. First, GST will cause price increases and it is bad for everybody in Singapore. Second, price increases will affect tourism. Third, price increases will mean reduced consumption and less business activities. Fourth, if poor people cannot afford this high cost of living, they may resort to criminal activities and there will be more crimes in Singapore or more trouble in their families. Fifth, because of administrative measures beyond control and ours being a free market society, profiteering is quite inevitable. This will cause inflation. So when we criticise GST, it is not politics of envy. We are showing our concern for the poor, the pensioners, the retirees and the people in the lower income group. Because the rich people can look after themselves. The poor people need the help of the Government. So our emphasis is to alleviate the problems of the poor, and not to help the rich. The Government should not assume that those who pay more taxes contribute more to the country. Although the poor people may not contribute very much in terms of taxes, they have contributed their blood and sweat for the benefit of our country. They have also contributed to the development of the country. Therefore, I will ask the Government, once again, not to implement the GST system in a hurry.

Mr Peh Chin Hua (Jalan Besar GRC): ( In Mandarin): Sir, I would like Mr Cheo to clarify two points. Firstly, he has insulted the lower income group of Singapore. In my constituency, there are many people who are in the lower income group. I do not believe that people from the lower income group will go to the extent of committing robbery just because of a 3% tax. I do not know whether he has used the wrong words in Chinese. Secondly, as the Government collects 3% GST, it gives back a lot of rebates to the lower income group. It is not that the Government is doing something which is superfluous, as alleged by him. Thirdly, he said that the GST has caused a lot of hardship to the lower income group. The GST will only come into force on 1st April next year. As they have not encountered the effect of GST yet they should not suffer hardship now.

Mr Cheo Chai Chen: ( In Mandarin): Sir, just now I was saying that if the GST is implemented, it will cause difficulties to those in the lower income group or those who are unemployed, and they may resort to crime to make their ends meet. I think this is something which is not impossible. The GST will also cause hardship to the poor people. I think it is possible. We cannot say it is not possible.

Mr Ho Peng Kee (Sembawang GRC): Sir, Mr Ling asks what has GST got to do with jobs. All of us who have thought through this matter of GST and who have discussed it, would know that GST has both a big picture and a small picture. As we hear debates in this House, I think this point comes across very clearly. Some Singaporeans see the big picture better. Other Singaporeans, like housewives, may see the smaller picture better. But I think all of us here are expected to know both the big and the small picture. But I think Mr Ling's questions show that this is a wrong assumption, and some people know neither the big picture nor the small picture. Mr Cheo has mentioned a few negative points for GST. All of us here, PAP MPs, even NMPs, I think, are objective. We bring up both good points and bad points about GST. But Mr Cheo only mentioned the bad points. Perhaps on another occasion he may also want to list out the good points about GST.

Sir, I would like to inject a new viewpoint to today's discussion. This may seem like a parochial viewpoint but it is not. I declare once again my interest as Vice-President of the Consumers Association of Singapore (CASE).

Sir, I welcome Government's decision to re-activate the Committee on Profiteering. CASE is ready to play its part in the Committee. In the Budget debate, I joined several MPs, amongst whom are, I think, Dr Vasoo and Mr Chew Heng Ching, in urging Government to adopt a more pro-active approach to countering possible profiteering and run-away inflation. We felt that even though Government has been most reassuring in stating that such phenomena will not be tolerated, actions, however, do speak louder than words. The free market, notwithstanding, Government should be seen to be doing something. Therefore, in this light, the re-activation of the Committee is a good first step.

Sir, CASE welcomes the Finance Minister's statement that Government is prepared to provide CASE with more funds. I also thank the Minister for Trade and Industry this morning in his call to consumers to give greater support to CASE. On its part, CASE will certainly take on a higher profile, as has been urged on it by many Ministers and others, to monitor and disseminate price movements. We will work with grassroots organisations such as CCCs and RCs to do this more effectively. The media will be asked to provide greater publicity to our findings. CASE is currently exploring the possibility of establishing a computer network with CCCs so that information on price movements can flow more swiftly both ways, from the ground to CASE and from CASE to the ground. In other words, there will be close coordination between our ears and eyes on the ground and the central headquarters. We are discussing with the relevant authorities on how best this can be done.

Sir, may I take this opportunity, with the indulgence of Members, to apprise Members and Singaporeans of the status of CASE. I am afraid that many people still do not fully understand the status of CASE. CASE is an independent, members-based organisation registered as a society under the Societies Act. It was founded through the initiative of NTUC in 1971 to counter profiteering. NTUC has remained stalwart supporters since then with many of its affiliated unions registered as institutional members.

In short, Sir, CASE, like other consumer groups worldwide, is not a Government body, neither is it a statutory board. However, unlike other consumer groups, financial support from our Government is, if I may use the word, miniscule, pegged at five cents per head of population, a formula worked out in 1981. It is to CASE's credit that, despite being a non-Government body, we are well regarded by businesses and retailers. Sir, you may ask, why should not CASE, as with other organisations, raise its own funds? The simple answer is this: unlike other organisations, it is critical that CASE is not seen to be beholden to businesses from which these funds would be raised. In fact, we do not even carry advertisements in our magazine.

Notwithstanding its tight financial position, CASE has fulfilled its mission of advancing the cause of good consumerism in Singapore, essentially through its consumer education and information programmes and assistance in settling consumer complaints.

I have issued a handout, which I believe is in Members' hands, which sets out the various programmes that CASE has undertaken all these years. Headed by a Central Committee comprising volunteers, CASE, through the media, highlights and enriches debate on topical consumer issues, presenting the consumer viewpoint. In 1992 alone, CASE was featured in 259 press reports in our various language newspapers. CASE organises seminars on hot topics of the day; the last one being on health care costs. It also produces pamphlets and guidebooks on consumer topics; conducts price surveys on a host of items, including major household commodities. It assists members in their disputes with businesses. It represents consumer interests in a host of technical committees and advisory boards. It oversees three Advisory Councils on renovation and decoration, on advertising and milk for children. It also reviews and advocates for legislation on consumer-protection and operates the Good Retailers Scheme in conjunction with STPB and, like many other consumer groups worldwide, publishes its own flagship magazine, The Consumer. Sir, like the hon. Member before me, I see that there is a glimpse of impatience on your face.

Mr Speaker: Mr Ho, I am not impatient. But I am just wondering what this run-down on the functions of CASE has got to do with the Bill. Could you please get back to the matter under discussion?

Mr Ho Peng Kee: Correct, Sir. Sir, it is important under the Bill, as a matter of policy, that the matter of profiteering should be looked into. As I mentioned earlier, Sir, it has been mentioned many times by not one Minister, but many Ministers, on not one occasion but many occasions, that CASE has a role to play. Therefore, Sir, I am addressing this problem of profiteering and how CASE intends to help Singaporeans as consumers to play this role.

Mr Speaker: But that was not what you were doing in the last five minutes. Carry on with your speech, and get to the point, please.

Mr Ho Peng Kee: Sir, I am concluding my speech. My other point is this. It may surprise Members to know that despite our functions, which are all public oriented, CASE to-date has not yet been granted status of a charity under the Charities Act, despite our asking for it, writing in, and so forth, to the relevant departments.

Sir, to sum up, in the light of GST, the need for responsible retailer and wise consumer behaviour has emerged in a poignant manner. As in the past, CASE will, despite constraints, continue to do its part. We urge all consumers to do likewise.

With this, Sir, I support the Bill, and I rest my case.

Mr Ling How Doong: Mr Speaker, Sir, earlier on Mr Ho Peng Kee mentioned the fact that GST would create jobs without citing examples. Now, he says that some people observe the big picture, and others observe the small picture. I am afraid after his speech, I see no picture at all.

Mr Ho Peng Kee: Sir, there may be light all around but some people, nevertheless, still see no picture. When we talk about the big picture, we do not need details. When we talk about the small picture, we need details. The big picture, Sir, is very clear. GST is linked to the reformation of our tax structure. It helps us to bring down our corporate tax. It brings in more people to invest in Singapore. It creates jobs - one, two, three, four. I hope Mr Ling is quite clear in his mind now, how the link is made.

Mr Ling How Doong: Cite one example. What sort of job it creates? 4.16 pm

Mr Chia Shi Teck (Nominated Member): Mr Speaker, Sir, I am enjoying some pictures. To make the picture clear on the fear of Mr Low Thia Khiang about compounding the sale prices (as a businessman) the market's law of supply and demand will dictate, and Singapore is an open market and competition is very keen. So there is no need to worry about compounding GST.

The concept of GST is very well explained and I accept it totally. The Minister for Trade and Industry, Mr Dhanabalan, has put up a very good explanation and argument. I would like either the Minister for Trade and Industry or the Minister for Finance to explain some of the figures. Earlier, Mr Dhanabalan said that for the direct tax and indirect tax, the preference is for a balance of 50:50. If I looked at the Budget figures, we are looking at $17.2 billion for 1993, out of which tax revenues add to $14.5 billion. $14.5 billion is broken up into income tax, $7.2 billion; assets tax, ie, property tax and estate duty, $1.4 billion; motor vehicle tax, $1.7 billion; customs and excise, $1.6 billion; sinful tax, that is, betting, $0.8 billion; stamp duties, $0.6 billion; foreign workers' levy, $1 billion. When the Minister for Trade and Industry said 50:50, would it mean the income tax of $7.2 billion will be halved into $3.6 billion and $3.6 billion from GST? I would like the Minister to answer that.

The whole point here is to control the Other Operating Expenditure (OOE). If the operating expenditure of $9.7 billion and development expenditure of $5.7 billion for 1993 are contained, then I would like the Minister to answer which part of the other taxes we are worried that may deplete over the coming years. Because the tax itself, which includes all the components that I mentioned earlier, totalled up to $14.5 billion, and we have another $1.9 billion from fees and licences, and others being loans from the Development Fund particularly, $0.8 billion. So you have an operating revenue of $17.2 billion, and your expenditure of $9.7 billion and $5.7 billion for development expenditures. So which part of the taxes are we collecting that are worrisome, and may drop?

The other point is, with the cut of 3% corporate tax, you are talking about $318 million. With the other 3% income tax deduction plus all the goodies given back, you are talking about a shortage of $494 million. Even if you were to go for 25% corporate tax, that is two more percent, you are just talking about another $200-300 million on the corporate side and $300-400 million on the personal side. We can still afford to do that without the introduction of the GST. With our growth and with ourselves making sure that we remain competitive and profitable and attractive, the contribution of income taxes from these corporations and high income earners will continue to rise. So the fear is that all these revenues that come in would disappear overnight. But if it does disappear and we need to increase what you call the indirect tax through GST, it would mean a big percentage, for 3% of GST only works out to about $800-plus million. If we lose any of those incomes that we were talking about earlier, to raise every $800 million would be 3% tax. If at the time when there is a recession and we need to bring in, say, $3 billion, the percentages would be quite frightening, because 3% only brings in $800-over million. So $3 billion would be in excess of 10% GST. As Dr Wang Kai Yuen said, from the figures that Mr Koo Tsai Kee gave, higher GST looks like higher unemployment.

The more important thing for us in Singapore is for all of us to see the big picture. We must make sure that we continue to be competitive, that the businesses that come in here can bring in profits, and the taxation part (corporate tax) is only one of the considerations. There are the other goodies, the total package that we are competitive in, that bring investors here. That was why last year we could still draw in $3.5 billion record investments. So there are these other plus sides that we have - the harmonious employer-employee relationship, stable and far-sighted government, strong Singapore dollar (particularly when people invest their money here, they know their money will grow), and political stability. All these, in total, we have to examine all the time. GST is just one of the little irritations that we are talking about. The question is whether so much energy spent here is worth the trouble, except for the fact that we were looking at a broader base of taxation. A broader base here means something like a quarter million self-employed Singaporeans, earning a lot of money, and not paying a single cent in tax. So that itself is very unfair.

Our population is aging and we have to ask all of us now to run the extra mile, to work extra hard, to increase our reserves. Our reserves, we should be using them as a sort of an endowment fund. Our reserves, we should be buying resources, buying resource-rich companies, buying good investments all over the world. That itself can replace and make sure that we have good income to come. With $70 billion in the reserves, if there is a return of just 5%, you are talking about $3.5 billion. So we should assure Singaporeans that all the reserves that they have helped to accumulate would be put to the best use and would bring in incomes that will cushion them in their old age.

On the unique position about Singapore, we are a free port and very few ports in the world remain that free. As the Minister said, except for those sinful taxes, we are practically tax-free, no import tariff barrier. Because of our position, we draw in a lot of businesses, entrepot trade business, transhipment business that takes place out of Singapore. A lot of these commodity traders do not produce all these commodities. Still we are rubber traders, coffee traders. All these people are very concerned - the High Street traders, Serangoon Road traders, the textile traders, foodstuff traders, electronics traders. A lot of these tradings take place here simply because there is no tax in Singapore. A lot of transhipment takes place here, and a lot of under-declaration takes place here. So people who buy goods off Singapore are actually "semi-smugglers" in the neighbouring countries.

How are they are going to claim back the tax that they pay on GST? Singapore is a shopping paradise. The worry is being addressed by the Minister about this draw-back of 3%. But we are now waiting for a cheap and simple mechanism, and that is the challenge. If we cannot get that, then what happens? Singapore, as a shopping paradise, will evaporate into thin air. Currently, the world's political and economic situation is very uncertain and very frightening. Since the Budget day on 26th February till now, lots have taken place and they are not for the better. It looks like they are going for the worst. I hope the Minister would look into that part of it.

The inflation part has been explained in detail and I think with Singapore's position, inflation may not get out of control. But, nonetheless, it is a worry, and the unions are waiting by the side and will clamour for higher wages if the cost of living goes higher than what they are given in return.

How then can we get a wider base of people to pay tax other than just introducing the GST? I really do not know at this point in time. But could we reward those who are taxpayers more in the CPF topping-up scheme and things like that? We are allowing everybody who is above 21 to have it. But what about those who actually contribute, who actually pay? They should be given the rewards. And because they are getting the rewards due to our good performance yearly, those who are self-employed and who are earning but not paying taxes may want to get into the full picture later on.

In total, I think the Minister has been very convincing. I buy and accept the concept that the system is a broad-based system. My worry is if we are going for 50:50%, then how many percent actually are we going to put in to reap the 50%? And on the taxes that we are collecting now, are we seeing something that we are not seeing here, the actual picture itself, that the Backbenchers may not see? Are we going to lose out in the COEs, collection of motor vehicle taxes, in the foreign workers' levy, or what?

Dr Tan Cheng Bock: Sir, I want to seek clarification from Mr Chia. He mentioned that we are a semi-smuggled goods centre. Can he please clarify that?

Mr Chia Shi Teck: Mr Speaker, Sir, there are some businesses done out of Singapore because we are a free port. But our neighbours do not play the same rules as we do, being totally free. So our neighbouring countries impose very heavy duties. Are we going to play the holier than the Pope's role? A lot of people who buy things here tranship and repack from Singapore and they do their own documentation to bring the goods into all these countries. So that is the transhipment business that may be destroyed. Even precious stones, TV sets, and things like these might be affected.

Encik Ibrahim bin Othman (Thomson GRC): ( In Malay): Mr Speaker, the goods and services tax will bring about a change in our tax system. Our focus, which hitherto has been on income tax, will now shift to indirect taxes. GST, which will start out at the rate of 3% from April next year, will restructure Singapore's taxation system to take into account our aging population. GST thus prepares us for the challenges of the future when everyone will have to be responsible for the national expenditure.

Although the subject has been mentioned for a number of years now, the full details of the GST were only known about a month or so ago with the publication of the White Paper. Random surveys by local newspapers show that many are still in the dark about it, particularly those in the lower and middle income groups. It is therefore imperative that the Government embarks on a wide-scale publicity programme to explain it in detail to the public. I would like to ask the Minister what sort of publicity will be launched in the one-year period before GST becomes law.

Singaporeans' concern about GST has to do with rising costs. This point has already been made by a number of Members in the House. The public is worried that the prices of all goods and services will go up by at least 3%. In fact, even before GST has been introduced, there are complaints that some traders are already raising their prices. I would like to suggest that the Price Control Unit take steps right now to monitor prices in the market. If possible, publish monthly price lists of daily necessities so that we can monitor trends in the prices of goods. If there are any cases of profiteering through undue price increases, the Government should consider enforcing the Price Control Act to help consumers.

I welcome the tax rebates announced. By calculations, many would be paying lower taxes. The Government expects the 3% GST to bring in about $921 million, while the rebates given amount to $1,070 million. The 3% rate will not be increased for as long as possible after the initial five-year period, provided income levels rise according to the rate of economic growth. I would like to ask the Minister, in case GST collections at the 3% rate turn out to be higher that the value of the rebates, could the rate be reduced or, alternatively, the rebates be increased? I hope the Minister could give due consideration to this.

Mr Speaker, the Government has also given rebates of between $5,000 and $20,000 for women who give birth to a second child before age 31 years. A $20,000 tax rebate is also granted in respect of a third and fourth child. I would like to know how the Government would refine the incentive structure for couples who are now enjoying tax rebates for two or more children. I think the two categories of rebates, ie, the GST offsets and the procreation incentives, can be given together. If a couple do not pay tax for seven years because of the procreation rebates, the GST rebates which they ought to have received otherwise could be credited into their CPF accounts. If they do not pay tax because of GST rebates, the procreation incentives could be deferred from seven years to, say, 12 years. I think the Government has to give incentives to take into account the loss they suffer.

The Muslim community is going to be affected by GST, like the other communities. I would like to pose a question specifically affecting the Muslim community. Would GST be imposed on these items: 1) Zakat Harta; 2) Zakat Fitrah; 3) contributions to Mosque Building Fund; 4) purchase of goats and cattle for sacrificial purposes; 5) payments towards a Hajj pilgrimage; 6) public contributions to mosques? Muslims have to prepare themselves for GST. At the same time, early preparations need to be made for performance of their religious obligations. A ruling as to whether they need to pay GST on these items will make it easier for them to make the necessary preparations. This is to avoid any confusion when GST is implemented.

Mr Speaker, I support the Goods and Services Tax Bill. Basically, GST is fairer as it taxes a person based on his expenditure, not his income. If one wants to pay less taxes, one would have to reduce one's consumption. This would teach us the habit of thrift.

I also support the Minister's proposal to refer the Bill to a Select Committee. This reflects the Government's openness in a matter affecting the people at large. The move will give the public the opportunity to offer views and suggestions to refine the Bill. Singaporeans should welcome this opportunity and respond by submitting their representations. 4.32 pm

Dr Toh Keng Kiat (Nominated Member): Mr Speaker, Sir, the

1993 Budget has been characterised by some very important tax reforms, not least of which is the introduction of the Goods and Services Tax. Several speakers have spoken about the whys and wherefores of having GST in the two days' debate following the Budget Statement. Because of its importance, there is some impact of the GST on life in Singapore which bears repeating. This would be the impact on tax collection, business conduct as well as consumer behaviour and pattern.

On the collection of tax, first of all, I would envisage a reduction in the loss of revenue from tax dodging or tax evasion. After the implementation of the GST, the IRAS will now have a very large number of surrogate tax collectors. And people, because of self-interest, will now want to protect themselves and make sure that their accounting is properly done, and not only that, they will ensure that there will be accurate invoicing as well as receipting.

On the conduct of business, we may see the evolution of a situation of business being done on a zero inventory basis. The GST taxes inputs as well as outputs and because of this, there will be people who will be reluctant to keep stocks.

On consumer pattern and behaviour, there will be a change in the attitude of spending, especially on luxuries and non-essential goods. But after the refractory period is over, I think the old habits will return. I am sure Dr Soin will see a return to the old social life that she laments may be affected adversely by the GST. After it was announced, the GST invoked a lot of pleas by several quarters to have what is called the essential items to be exempted from it. The Minister for Trade and Industry, Mr Dhanabalan, has alluded to this by saying that we should not zero-rate or exempt some of these items. And I think the Government has been very wise to resist the temptation of yielding to very politically attractive options of putting a lot of things under exemption or zero-rating. We have been told of what happened to the British VAT system and I have read the same article in the Economist that Mr Dhanabalan spoke about. To have many items exempted and zero-rated will mean that we will be bogged down in the same kind of problems that Britain has. In fact, their problem is so bad that the Institute for Fiscal Studies is now busy trying to evaluate how the removal of items from exemption to be put back into the VAT will affect the British economy.

Having said that, I would like to devote the next part of my speech to some of the nuts and bolts nexus in the Goods and Services Tax Bill. I know the Minister for Finance has committed this Bill to a Select Committee but I think there are some salient points which we should now address. In clause 3 of this Bill, we are told the definition of what a business is and included in this are the clubs, organisations, societies and other bodies which have similar activities. Looking at the Straits Times' Classified Section today, under the sale of club memberships, we notice that there are no less than 30 to 40 club memberships up for sale, and 25 of them involve transferable club memberships in Singapore. There are country clubs and golf clubs where membership is transacted at very high prices. For those who have posted a price, the total to-date adds up to more than a million dollars. If we exempt the transfer and membership fees from GST, then there will be a lot of loss of revenue. Perhaps, this matter should be looked at with closer scrutiny.

In clause 12(1) and (8), there is a provision for a time when a supply is to be made. I would like to enquire whether deposits made on goods which are being let out on approval or consignment would also be affected by liability for GST. This should also involve goods which are being sold on instalment or leasing basis. Further in the Bill, we are told that there are provisions for bad debts as well as for insolvency. But on the leasing of goods, there is no provision being made. Defaulters in a lease are subject to repossession and repossessed goods are often being sold at a depreciated price. Perhaps, this loss or depreciation should also earn a tax credit.

In clause 17(3), we are informed that there will be valuation made for market pricing of supplies for which the consideration is not entirely monetary. This clause appears to be an endorsement of some form of barter trading and may open the door to a black economy.

Clause 19(4) allows for apportionment for goods and services and imports which are partly consumed for non-business and other purposes. But it does not spell out what this non-business and other purposes are and also the methods for apportionment.

In clause 20, there is indication of the amount of input tax that is allowable. Sir, this is determined by the source from which the inputs come. As a GST exempt establishment is not free to issue tax invoices, it may be disadvantaged. Taxable persons will be inclined to get the inputs only from GST taxable sources. In this respect, I would expect more tax exempt organisations and persons to want to opt into the GST rather than opt out by virtue of having turnovers less than a million dollars annually. At this point, may I suggest that the inordinately generous cut-off point of a million dollars be reduced to $500,000 instead. When the New Zealand GST was implemented, the exemption level was set at NZ$24,000. Earlier on, we heard the Minister, Mr Dhanabalan, report that by exempting a lot of goods from GST, the essential goods, such as food, clothing and medicine, we are benefitting the rich. By having a high cut-off point, we also have the same effect because a high cut-off point means that there will be many more items, although these are not specified, which will be free of the GST. Already, the Income Tax Act has stipulated that businesses, which do more than $18,000 annually, or services more than $12,000, are required to give properly serialised receipts and to keep proper books. Surely, it is not too much trouble to add on the 3% to the calculations.

To those who are opposed to this argument by saying that the GST will now adversely affect the low-income group, I would request them to read again the White Paper on GST which stipulates very clearly that tax exemption from the GST does not mean that they do not have to be tax liable for their inputs. In other words, the additional tax that they pay for their prices of the inputs will now have to be passed on to the consumers so that any additional change in price under the GST, where there is the additional tax on the outputs, will only affect the prices marginally.

There are also, at this point, a lot of non-GST measures which have been introduced to neutralise the effects of the GST. In clause 34, we are told of special provisions for what Mr Dhanabalan has described as the "sinning" activities - betting, gambling, lotteries and the like. The Minister for Finance has announced that this will not be GST exempt. I urge that this decision remain a permanent one.

In the Third Schedule, item 10, provisions are made for foreign exchange rate differences. This is of relevance to the import of luxury items, like cars. Many dealers are known to have kept their vehicles in the yards to await an opportune time when the exchange rate works in their favour before they have them registered. As customs duties are dependent on this, and also the other consequential taxes, the timing for when a supply is made should be clearly defined.

Finally, the implementation of GST appears to have very many rough corners that need to be smoothened. Most of us are pleased that adequate time has been given for this very important Bill to be discussed in the House during the budget debate, now and again at Select Committee level. But between now and April 1994, it is the onus of every responsible Member of this House to explode the myth that GST is a legislation that favours the rich and discriminates against the poor.

Sir, I support this Bill.

Mr Tong Kok Yeo (Nominated Member): Mr Speaker, Sir, I rise to support the Bill.

Sir, there are two points which I think lay people and ordinary Singapore workers are concerned upon the introduction of GST. They are inflation and profiteering. The Minister for Trade and Industry had earlier addressed these two points very well and I do not intend to belabour the points again.

With your kind permission, Sir, I would like to take this opportunity to respond to the remarks made by Mr Chiam See Tong this afternoon. Mr Chiam has made a remark regarding trade union leaders in Singapore. I have been involved in the trade union movement for the last 10 years. Throughout the 10 years, I think the economic and social status of the Singapore workers has improved tremendously. All this has come about because trade union leaders in Singapore work for the workers. Therefore, my colleague, Mr Goh Chee Wee, is absolutely right in stressing the point that there must be foreign workers' levy so that the wages of Singapore workers are not depressed. Already there are views that in spite of the current foreign workers' levy, the wages of Singapore workers are already depressed. Therefore, the trade union leaders are doing their part to ensure that the wages of the lower-income workers in Singapore are not depressed by the import of foreign workers. So it is absolutely right and correct that foreign workers' levy be introduced. It is the role and duty of trade union leaders to ensure that there must be foreign workers' levy. Not to do so would be a dereliction of their duty as trade union leaders. 4.47 pm

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I would like, first, to thank the various Members who have spoken in support of the Bill. Although many have understandably expressed concern over the impact of GST on the lower-income groups, particularly the retirees and aged persons, and its likely impact on tourism, I think in my previous speeches I have said that in the case of tourism we recognise that there might be a problem, particularly where tourists are purchasing high-value items and we are looking at a mechanism to correct this. But more generally, I do not believe that a 3% GST applied generally across the board can have a really significant impact on the depression of tourism. This is something that I think both the Government and the STPB will monitor very carefully. It is not something we are going to ignore because the tourism industry is a major component of our economy.

As for the lower-income groups, particularly the older retirees, we recognise that they face a special problem. I have said that we would closely monitor the impact of GST on their welfare and, if necessary, we will introduce other measures beyond those we have already announced to ensure that they are not unduly affected.

As for the Opposition, predictably, they have all opposed GST. I believe that these are knee-jerk reactions taken perhaps without real thought because they are popular reactions with a great deal of mass appeal. But because they might lead to a misunderstanding by the public, I intend to spend more time in addressing what they have said in order to make sure that a wrong impression is not conveyed to the public at large.

First, I will not cover the ground which has already been extensively covered by the Minister for Trade and Industry, particularly when he has explained the reasons for not extending the exemption beyond what we have already announced.

I would like to begin by explaining why - this is a general question which has been posed - we have decided to introduce GST now, whereas in the past I have consistently said that we do not need a GST until we need the money. Historically, the need for GST was first mooted in 1985 by the Economic Committee. I also made specific mention of it in the 1989 Budget speech. At that time and regularly since, I have said that GST would not be introduced until our revenue position required it. Why have we changed? I think the answer is quite straightforward. It is that the world has changed drastically since 1989. In 1989, our main competitors for export markets and investments were the NIEs - Hong Kong, Taiwan and South Korea. Since then, two sea changes have taken place in the world environment. First, the collapse of the Communist/socialist system and the recognition by practically all developing countries that the key to economic growth was the opening of markets to foreign investments and the adoption of the competitive market mechanism. Secondly, there was the collapse of over-inflated financial and real estate markets in Japan, US, Canada and the UK.

What are the consequences of these changes on Singapore? First, instead of competition for exports with the three other NIEs, we now face competition with a host of potential NIEs, including Indonesia, Malaysia, Thailand; and over the horizon loom even fiercer competition from China, India, Pakistan; and in the longer-term, all the East European countries including Russia.

Secondly, the financial problems in Japan and the US have led to a withdrawal of investment capital as banks in the US and Japan rebuild their capital bases. Competition for the reduced pool of international investment funds will therefore be very fierce in the future. And we will be competing for this small reduced pool with countries with much cheaper labour and land.

How then does Singapore compete? Firstly, we must continue to do what we have done in the past, which is to provide first-class infrastructure and a pool of high-skilled and educated workforce. Secondly, we must move upstream as quickly as possible into high-tech manufacture and services which demand good infrastructure and high-skilled and educated labour. Finally, we must reduce our corporate taxes so that foreign multi-nationals investing here can have a better return on their capital compared to other countries. As some Members have said, the issue is job creation. Without investments, both foreign and domestic, we will simply not have jobs in the future. So the introduction of GST through tax reductions, through the creation of investment capital, both domestic and attracting foreigners, we create jobs.

Mr Chiam, who is not here unfortunately, has, predictably, I thought, used the Australian example to say why we should not introduce GST. I was waiting for this. But the Australian experience is useful in illustrating how not to introduce a broad-based consumption tax such as GST. Mr Hewson's tax programme was a brave attempt to radically reform the Australian tax system. He wanted to replace a complicated system of 15 indirect taxes, including payroll and wholesale taxes, with a single GST at 15%. Personal income taxes would also be cut but corporate taxes would be increased from 39% to 42%. Unfortunately, the package in its timing was clearly unsaleable. The lesson for us is that GST cannot be introduced in a recession when the unemployment rate is 11%. Certainly not a GST as large as 15%. The offsets offered were nowhere near enough to offset the impact of a 15% GST on the lower-income groups. Many of them do not even have jobs. Australia could not afford the kind of offsets required because the country is in recession. The government has a budget deficit and the country has an external debt of over US$120 billion, perhaps one of the largest on a per capita basis in the world. Hence our decision to introduce GST now at a low rate when we have full employment, healthy budget surpluses which allow us to fully offset the GST and give away more money besides.

Mr Chiam and Mr Low have also said, both today and in speeches in the past, that GST will not make Singapore more competitive. In fact, in an anti-GST rally, the SDP has said that the Government's proposal to cut personal and corporate income taxes will not make Singapore competitive. They have said that cutting taxes would only give people more money to spend or save as they saw fit. I believe that this is an extremely naive approach and is unbelievably naive for the leadership of a political party.

The proposed cutting of income taxes is not about giving people more money to spend, but to ensure that Singapore continues to attract its share of international investments in an increasingly competitive environment. It is not about giving Singapore entrepreneurs a better return on their investments in Singapore. It is about giving Singapore entrepreneurs a better return on their investments in Singapore so that despite our higher wages, they will continue to invest in Singapore and not move their operations completely offshore, but only the labour intensive components. It is also about allowing Singapore entrepreneurs to keep a higher share of their after-tax profits so that they can expand overseas.

The Opposition has also said that Sin gapore has already a very high savings rate and does not need GST to encourage more savings. I believe this is a rather foolish notion. In an uncertain world, no nation which wishes to grow and become richer in the long term and has any concern about the welfare of its future generations should ever say that it has enough savings.

If a country is to grow, it must continually add to its capital stock. The more a country invests in increasing its capital stock, the more output it can produce for a given labour force and the richer it grows. If a country is to invest heavily without relying on external borrowings, it must have a high level of domestic savings. I think the record is clear. Countries with high domestic savings grow faster than countries with lower savings.

As countries mature, two trends work to reduce the level of savings. First, declining fertility rates and rising life expectancies combine to raise the average age of the population. Savings will decline as the proportion of savers, who are working persons, declines and the proportion of dissavers, the retired people, rises. Second, rising affluence always encourages spending. Reversing the first trend is particularly difficult because as nations become richer, families become smaller and life expectancies rise with better nutrition and health care. It is the insidious effects of a trend towards more spending instead of saving that we must resist for as long as we can.

Mr Chiam and the SDP have also in the past said that the use of GST to broaden the tax base in the face of an aging population is wrong. He blames the aging entirely on the PAP's two-child family. I think this is a downright insidious, if stupid, argument. Let me explain. In the early 1960s Singapore was confronted with a classical problem of a small poor country trying to break out of the poverty trap. The population growth rate was over 4% per year. It was essential that the rate be brought down to a level which will allow the accumulation of capital for re-investment to sustain growth. Without this, any increase in GDP will be consumed by a rising tide of new mouths. The SDP should open its eyes and look around at the many third world countries still struggling with this population growth problem. Look at what China and India are both doing over population control and ask yourselves why are they doing it.

Singapore is now faced with a different set of problems arising from prosperity. All developed industrial countries face declining fertility rates. With rising affluence, as I have explained, and better education, more women work and families become smaller. As an urban society, we have arrived at this stage much earlier than most countries. Our recent population increase initiatives have staved the decline in fertility. When combined with a judicious immigration policy, it should be possible for Singapore's population to reach a sustainable level of around four million sometime in the next century.

However, even if the population growth rate is stabilised, we would still be faced with the problem of an aging population because of the rise in life expectancy. In 1957, life expectancy was 60.3 years for males and 65.2 for females. With better nutrition and health care, this has risen to 76 years for males and 78.3 years for females in 1992. By the year 2030, it can be expected that male life expectancies would rise to 78.8 years and females to 81.6 years. The impact of this change can be dramatic. As we have said in the White Paper, currently eight working persons support each aged person. By the year 2030, only three working persons would be supporting each aged person above 60.

The demographic and family lifestyle changes associated with rising affluence are realities we have to face and plan for. The introduction of GST at this time is a recognition of a future need which has to be addressed now. Let us just imagine what Singapore would be like if we had a SDP Government 30 years ago. There would have been no population control policy, as they have advocated, so as to avoid an aging population. Every family will be encouraged to have as many children as possible so that Singapore could have an army of young workers. There will be no need for foreign workers, and no foreign workers' levy. Paradise would have arrived by the turn of the century. Singapore's population today probably easily exceeds four million and would still be growing at the rate of 4-5% per annum. By the year 2000, we would still have a very young population of 20 beggars supporting each 60 year-old beggar.

The Opposition has also said that the Government has large reserves and big budget surpluses. Therefore, taxes can be cut without the GST. Let us examine this statement. I have said that if our GDP continues to grow at around 4-6% and Government expenditures are kept under control, there will be no need to raise the GST rate beyond 3% and that it would be even possible to cut income tax further without raising GST. Members will appreciate, however, that there can be no assurance that there will be no downturns in the world economy. The possibility of trade conflicts is very real, as a new GATT agreement is nowhere in sight, and protective trading blocs are beginning to emerge as alternatives. As income tax revenue is strongly correlated to GDP growth, a budget surplus now could quickly turn into a budget deficit if we are hit by a recession. It would therefore be highly irresponsible and short-sighted to cut income taxes without putting into place an alternative GST which is much less dependent on GDP growth.

It has also been suggested that since we have large reserves, the income from these reserves should be used to offset income tax cuts, and therefore no need for GST. Again, this is an extremely short-sighted and unacceptable proposal. Our external reserves now stand at around $60-odd billion. This appears to be a very large sum, but let me remind Members that it only represents about seven months of total imports for Singapore. This is a comfortable level now if there are no upsets in world trade and our economy continues to grow normally. If things turn sour, we will need every dollar of our reserves to keep our economy alive until external conditions return to normal. There is no way to predict how long this might take.

We must never forget that we have very little land and no natural resources. We import 100% of our energy requirements, practically all our food, 50% of our water and 70% of our total imports are either consumed or used as raw materials for manufacture of exports. Given our heavy dependence on imports, we should never draw down our reserves except in an emergency. In fact, it is essential that our reserves should continue to grow so that its size, expressed as a percentage of imports, can be maintained. If it does not grow, its size, relative to imports, will fall to unacceptable levels over time. The easiest way to achieve this is not to spend the income we earn from our reserves, but to allow it to accumulate. Other countries, with land and natural resources, can in an emergency fall back to live off the land. We have no such fall-back except our financial reserves. I think I have dealt with most of the basic issues which the Opposition has raised.

Mr Low Thia Khiang has produced a table but I will not take up Members' time. We have produced a table (Cols. 1647 - 1648) ourselves which I will ask the Clerk to distribute. [Copies of table distributed to hon. Members]. It shows the correct way of calculating it. Basically, what Mr Low has done, with the best of intentions, is to apply GST on top of GST. Unfortunately, that is a very, very common misconception of the impact of GST and it is helpful for Mr Low to bring it to the public's attention at this time. I thank him. You do not apply GST on top of GST. table - Mr Low Thia Khiang's Table 2, Correct Version of Table 2 (Cols. 1647 - 1648)

Before I take up individual points raised by Members, Dr Ow Chin Hock has asked about the compliance cost of GST. For the Government, the main cost is manpower. The Inland Revenue Authority of Singapore and the Customs and Excise Department will need 294 and 86 additional staff respectively or a total of 382 extra persons. The increase in manpower and associate costs will be in the region of $26 million to $29 million. It includes some capital equipment. The current cost of operating the Inland Revenue Authority is around $100 million. So this shows the proportion of increase in size. Existing establishment for the Inland Revenue Authority is 1,873 and the Customs and Excise Department is 1,162. Part of the cost of collecting GST, which I have just mentioned, will be offset in the future from savings in the administration of existing income tax. A preliminary estimate shows that at least 120 posts can be saved. This is possible because the reduction in personal income tax will result in about 67% of individual taxpayers not paying income tax as well as the suspension of existing indirect taxes. Over time, as the administration of GST is streamlined, I would expect more savings can be achieved.

Cost of compliance for business. The GST has been frequently criticised for imposing a major compliance cost on the taxpayer, and for shifting the incidence of the cost of collection from Government to business. This criticism has arisen largely from experience in countries with complicated GST systems, principally in Europe. It is simply not true of simple GST systems and studies in Europe have shown that even with complex systems, the cost is largely one-off, with continuing cost being minimal.

The foregoing is a direct quote from a technical newsletter sent out by Price Waterhouse. It is not what Government said. Presumably, this statement is based on their experience with GST elsewhere: "It is difficult to make an accurate forecast of compliance cost for business in Singapore as it depends on the nature of the individual business. However, the experience of other countries will provide some guide." I will now ask the Clerk to circulate a table (Cols. 1649 - 1650) to Members. [Copies of table distributed to hon. Members.] This is a table showing the cost of compliance based on surveys conducted in the United Kingdom and New Zealand. In the UK it is VAT, and in New Zealand it is GST. The data will show clearly that the compliance cost, expressed as a percentage of annual turnover of a business, is highest for small traders and declines with increasing turnover. It is something which we would expect. It is for this reason that we have decided to establish a relatively high exemption threshold of $1 million. This is to ensure that the large number of small businesses in Singapore will not have to bear the compliance cost of introducing GST. table - COMPLIANCE COST OF GST/VAT (Cols. 1649 - 1650)

For Singapore, we would expect that the cost of compliance should be lower than in the United Kingdom and New Zealand, because we have kept the GST system simple and because we have established a very high threshold. At the moment, there are 181,000 active companies registered in Singapore, of which 143,000 or 79% have annual turnovers below $1 million. That is the reason why we have established a high exemption limit so that the small companies will not be burdened with the need to introduce accounting systems which they are not familiar with.

Members will note that the compliance levels are relatively small percentages of turnover at any level above the equivalent of S$1 million per annum. They will have to do a mental conversion on the pound and New Zealand dollar.

Some Members, including Dr Ow, have asked for Government to continue to maintain a programme to explain the mechanics and the impact of GST to the public. I entirely agree, because my own perception is that it is widely misunderstood and we will need a lot of publicity, a lot of campaigns, and we will be working out the detailed programme to ensure that this is done, including, hopefully, TV seminars, and even perhaps video-tape simulated GST transactions which can be widely viewed in the CCCs and in the community centres. It is clearly something we need to do and we will do it.

There have also been calls for the establishment of a Price Review Committee. In this connection, we will solicit the support of CASE and in doing so, if they can come up with good programmes, Government would be pleased to increase the funding of CASE.

Dr Soin has asked whether the education subsidies to disabled schools could be raised. I think the decision has been taken that all subsidies for Government-aided schools will be increased. But some of the disabled schools are privately funded and this is one area which the Ministry of Education is examining.

Mr Ling, who is not here, has suggested in passing that in the case of foreign worker's levy, we should, in place of the levy, introduce Government regulations. But this seems to be contradictory to the SDP's position that what we do not need more in Singapore are Government regulations. I suggest that Mr Ling should sort it out with his Secretary-General.

Finally, Mr Chia has asked about the split between direct and indirect taxes. I should explain that when he adds the sums together, income taxes should be included with assets taxes or property taxes as a direct tax component, in which case the ratio will work out to be about 60:40.

He has also asked why we have introduced GST: Is it because we are worried that some of the other indirect taxes would somehow be reduced in the future, therefore, we need the revenue? We have explained in the White Paper that we have significant other forms of indirect taxes now in the form of taxes on cars, tobacco, alcohol, gambling, and so forth. But we have also explained that these are very narrowly based taxes and there is a point beyond which you cannot raise such taxes without leading to reduction in revenue. A situation could arise where, because of public pressure for Government to increase subsidies, revenue has to be extracted from somewhere.

If we have in the meanwhile cut corporate taxes, we surely do not want to increase it again. This might drive investors away. So what do we do? We have two choices - either use the GST or we can increase taxes on liquor, tobacco, gambling, cars. But these taxes are levied for specific control purposes and it is not possible to increase them to the level where, for example, liquor and tobacco, it would just stimulate massive bootlegging, as they had in America in the old days. Any increase in gambling taxes will merely encourage illegal gamblers to proliferate. Because they are narrowly based, we cannot rely on them for substantial increases in tax revenue in future should we need it after we have cut direct taxes, and the only alternative is GST. Hopefully, of course, GST will not need to be raised if we do not come under pressure for large amounts of public subsidies.

I do not quite understand his point on the impact of GST on transhipment business. I hope he is not suggesting that we should encourage smuggling.

Mr Ibrahim Othman has asked about the impact of GST on certain Muslim donations. On cash donations for mosque buildings, GST will not apply. Payments for pilgrimages and air fares are zero-rated. For goods bought for sacrificial purposes, unfortunately, GST will apply, but it should not be very heavy.

I think I have covered most of the points raised by Members.

Mr Cheo Chai Chen: ( In Mandarin): Mr Speaker, Sir, last week when we were debating the Budget Statement, I said that we should improve productivity, increase foreign exchange earnings and to create better conditions to attract foreign investments.

Mr Speaker: Would you like to get to the point and ask the Minister what is it in his speech that you do not understand?

Mr Cheo Chai Chen: I will have to say something first before I ask my question.

Mr Speaker: No. This is a point of clarification. Ask for the clarification, please.

Mr Cheo Chai Chen: I wish to seek the views from the Minister.

Mr Speaker: Yes. What is the point that you want to clarify? Could you ask your question?

Mr Cheo Chai Chen: No. I have to say something first before I ask my question. Otherwise, I cannot ask my question.

(In Mandarin) I was saying that we must create favourable conditions to attract foreign investors in order to ensure economic growth or better economic growth. If we are not able to ensure that in future we can have economic growth, even with the implementation of GST, in the long term, it will be useless, because we will not be able to subsidise the people.

Mr Speaker: Order. Mr Cheo, I am making a point of order. You are not seeking clarification but making a speech.

Mr Cheo Chai Chen: No. I am seeking the Minister's views.

Mr Speaker: All right. Ask your question now. If you are not going to ask your question, I am telling you to sit down.

Mr Cheo Chai Chen resumed his seat.

Mr Speaker: I think the Member is not aware what a point of clarification is.

Mr Chia Shi Teck: Point of clarification, Sir. I am not encouraging smuggling. I am talking about neighbouring countries buying off Singapore. How they pack their things back has nothing to do with GST, and I am not encouraging smuggling into Singapore.

Question put, and agreed to.

Resolved,

That the Goods and Services Tax Bill be committed to a Select Committee consisting of Mr Speaker as Chairman and the following Members:-

Mr Chiam See Tong

Mr Robert Chua Teck Chew

Mr S. Dhanabalan

Mr Goh Chee Wee

Mr Ho Peng Kee

Dr Richard Hu Tsu Tau

Mr Lim Boon Heng

Mr Low Thia Khiang

Dr Ow Chin Hock; and

Cdre (Res) Teo Chee Hean. - [Dr Richard Hu Tsu Tau].