GST

Why do governments push for GST? They said it is to have a broad tax base.

The Hong Kong case is worth investigating. HK govt said we have a narrow tax base relying heavily on salaries/profits tax and also proceeds from sale of land. Without a strong and steady tax base, they cannot deliver quality services year after year to the public. They also quoted we had severe deficits in the past cycle [1997-2004] wiping out almost 1/2 - 2/3 of our reserves. What they did not say is the real estate is down 60-70% from top. How many times in one's lifetime you see a 60-70% drop in real estate over a period of 7-8 years? Maybe only once if you do not have wars, so why worry.

There is reason to worry about the governments' intention as they dont have sense in spending money and they want GST to protect them so they do not have to figure out how to cut costs in down cycles. GST is an indirect tax and raising GST rates has less resistance from the public. Direct tax hikes are overwhelmingly rejected by the public in most cases.

Once GST is installed, the govt has a blank check in their hands, they can raise rates as they wish. History indicates that in 9 out of 10 cases rates are hiked not lowered. In Singapore, they even raised GST rates to subsidize corp tax rates ie lower the corp tax rate by two points. Europe is a good case in point, it started the VAT in the lower teens and raised it all the way up to 20.

Japan and Singapore are late adopters of GST but both raised rates since implementation not lowering them.

GST also tends to eliminate layers of transactions because govt taxes at every turn of a transaction with GST in place. For example, say co A is short 100 units of goods G, co B has excess stocks of G say 100 units, but they dont know each other yet each knows co C. What they can do is C buys from B 100 units of G and sells them to A, you can imagine there is a great difference here with and without GST in place.

Small to medium enterprises would find it hard to survive, manage the costs of implementing GST and deal with GST audits.

In summary, GST is bad because

• rates are mostly hiked not lowered
• gives a blank check to the govt and thus no incentive to lower costs
• hurts SME most
• add costs to enterprises
• govt admin costs on GST are high too