GST Lessons from Singapore

Why in news?

Singapore government recently announced changes in the rate of the Goods and Services Tax (GST).

What is the taxation announcement?

• Singapore government announced that it would raise the rate of the GST from 7% to 9%.
• This will be the fourth increase after the GST was introduced there in 1994 at 3%.
• The last increase was in 2007, when it went up from 5 to 7%.
• The reason cited for the latest increase is to help the government raise resources.
• It is to enhance outlays for health care, infrastructure and security.
• It is said that the increase would take place between 2021 and 2025.
• In essence, the duty hike is to be effected over a period of four years.
• Moreover, the announcement for the increase is made 3 years in advance.

What could India learn?

• Early announcement of duty hike is one element of Singapore’s GST structure that India should embrace.
• There are clear advantages of outlining the new rates in advance before enforcement.
• In India, there is virtually no time between the duty increase announcement and its enforcement.
• This is an offshoot of the old mindset that prevailed during the licence-permit-controls regime.
• There is no reason to continue the same practice even after decades of liberalisation.

• Early announcement - Industries could plan their production and sales in keeping with the new duty regime.  
• Also, an advance announcement permits reasonable debate and discussion.
• So, if some changes are considered necessary, they can be introduced as well.

What is the way forward?

• A single-rate GST structure is not what India can accept and implement at present.
• It may not be easy to unify the many current GST rates into one rate.
• However, the medium-term goal to reduce the multiplicity of rates could aim for

1. eliminating the top rate of 28%
2. bringing down the 18% rate by a few percentage points
3. raising the lowest rate by a similar margin

• It could contribute to moving towards a two-rate GST regime.
• Even the transition to a two-rate structure should be implemented in phases.
• This will ensure that the consumers are able to absorb the impact and inflation remains under control.
• One of the achievements of the Indian GST regime is that it has not been inflationary.
• However, it must be ensured that items consumed largely by the poorer sections are not taxed higher than the previous rates.

Source:  Business Standard