Tax experts advised the Indian government to follow the Singapore GST model of one Tax instead of multiple tax slabs. This will ensure that the Goods and Services Tax does not hurt lower-middle-income group.
Singapore’s Model of GST
The Singapore government follows a single rate GST, which is 7% on taxable goods and services. In 2012, the government introduced the ‘GST voucher Scheme’ to assist lower-income residents. Citizens receive GST voucher in three parts:
1. Cash Voucher– The registered citizens get this voucher in August every year to meet immediate (daily) needs of people.
2. Medisave– Transferred to the CPF MediSave account of citizens above the age of 65 years to meet medical expenses.
3. U-Save– HDB households get this voucher for paying their utility bills quarterly.
Inland Revenue Authority of Singapore implements tax at multiple stages of production and distribution. Heng Swee Keat, Singapore’s Finance Minister, declared the increase of GST rate from 7% to 9% sometime in 2021 to 2025.
India’s Model
GST is considered as the most efficient tax and thus a ‘good tax’, said Manu Bhaskaran, founding director, and chief executive officer of Centennial Asian Advisors. But in India, GST is imposed under the ‘multi slab system’. For this Goods and Services are divided into different tax slabs.
India cannot directly adopt a ‘single rate’ tax system due to the huge gap between per-capita incomes. Sandeep Chilana, managing partner of Chilana and Chilana law office said that India should minimize the tax slabs. The slabs must be 6% and 14% instead of 3%, 5%, 12%, 18% and 28%.
Despite the non-inflationary characteristic of GST, the lower-middle-income group pays GST as other consumers. So the government needs to come with an approach, as of Singapore, to combat the situation. For this, the assessment of the lower-income group should take place to decide the eligibility criteria for the voucher.
Hence, GST alone may prove regressive but the ill effects are wiped out with the GST voucher scheme. Instead of providing various welfare schemes to poor people including PDS, Direct Bank Transfer, LPG, etc, the government should consider GST voucher scheme for its citizens.