Business Times – 09 May 2008
LETTERS TO THE EDITOR
Zero-rating GST on food won’t help poor
IN his letter (‘Zero-rate GST on basic food items’, BT, April 30), Manmohan Singh suggested that if GST regulations can be introduced to zero-rate trust services, computer server equipment and annual meetings of international organisations, why not basic food items to help the poor and the unemployed cope with inflation?
GST is a tax on domestic consumption of goods and services. Zero-rating is accorded only to overseas consumption. Trust services and Web-hosting services provided to overseas persons are thus zero-rated. If the same supplies were made to local persons, 7 per cent GST would still be applicable.
GST is also payable on the supplies of goods and services for all international events in Singapore, including the 2006 IMF-World Bank Meetings and other events such as the Singapore Airshow. However, for the IMF- World Bank event, as part of the local costs incurred by the IMF/World Bank which the host country had to pay for, the government reimbursed the two organisations the GST they paid.
Zero-rating the GST for basic food items is not the best way to help the poor. Lower-income households account for only 7 per cent of the total GST that is paid on food. Zero-rating food items would thus end up benefiting the higher-income group disproportionately, making it an inefficient way to help those who really need it. Further, most of the spending of lower-income households is not on basic foods. Thus zero-rating the GST for such items will have only a limited impact in helping these households.
This is why the government’s approach has been to help the lower-income group directly, through the GST Offset Package and targeted measures under ComCare. Families who need additional financial assistance may approach the Citizens’ Consultative Committee (CCC), the Community Development Council (CDC), self-help groups or voluntary welfare organisations, who are in the best position to assess the needs of such families and tap the CCC ComCare Fund if necessary.
This way, we can provide lower-income households far more substantial assistance, which they can spend on food or other items according to their needs.
The government is concerned about inflation and the rising cost of living. That’s why this year’s Budget included the Growth Dividends and other relief measures, targeted especially at lower- and middle- income Singaporeans. Together with measures such as last year’s GST Offset Package, the government will give out over $3 billion in benefits to Singaporeans this year. Lower- and middle-income households will receive benefits that exceed the increase in the costs of living that they face.
Chin Sau Ho
Director (Corporate Communications & Services)
Ministry of Finance