GST - It is unfair to me.

Goods and Services Tax (GST) is a pay-as-you-consume tax.

So if I were to buy anything ie. anything until the day I die and buried, part of my cash is actually going to the government coffer.

Even if I were to buy from a non-GST registered retailers, he/she would charge a price that would cover the costs of its raw materials etc etc. As most of what we consumed are imported, GST is levied on these imports as they leave the ports.

All my expenses during my retirement will be funded by savings I am accumulating since I started work. These savings are derived from after-income-tax income.

Tax and tax on the same income?

Illustration
Let say my income tax bracket is 10% and GST is 7%. I assume I spend every cent of my disposable income after tax. Let's say, my annual income is $100,000.

$90,000 would be my after-income-tax income. 7% of $90,000 is $6,300.

I would have paid $16,300 in taxes for $100,000 income ie. 16.3%.

While this illustration is taking to the extreme, it serves to illustrate the importance of looking at your total tax burden over time.

I was looking forward to my retirement. But now I have to work harder as I have to protect my savings against normal inflation rate + a factor of GST.

So it now look that I will pay GST until all my funeral expenses are paid from my estate.

Bodyguard expenses not tax deductible

What is the issue?
A company seeks the High Court's decision to allow the expenses for the body guards for a director as tax-deductible expenses.

Decision - The High Court ruled that the expenses are not tax-deductible.

On what ground?
The costs of hiring the bodyguard in this case are ruled not wholly and exclusively incurred in the production of income. [Mr Goh Sher Wee’s voice on this line echoes in my empty head.] The company concerned is in the business of exhibiting motion pictures.

How much monies involved?
About $70,000 costs of body guards per annum. So at 20% corporate tax for example, that would translate to $14,000 in tax deductibles per annum. If the expenses were incurred back in 1970s till 2006, the amount involved would be substantial.

What defence has the appellant's counsel presented?

• In 1972, there was a kidnap attempt. 4 men with guns. Shot the director in the arm. Director managed to escape.
• CID recommended that the director be given the necessary protection.

Information I don’t know

• When were the expenses incurred?
• What has a 1972’s incident got to do with 2006?
• What was the motive for attempted kidnap? Was it business-related?

Even if the director is a key man to the company, the company cannot be incurring expenses for director’s personal matters.

In my opinion, there maybe some grounds for appeal if one can prove that the kidnap attempt was a consequence of the director’s action in effecting his duties for the company. The company would then be obliged to act responsibly in return.

Similarly, the President of USA is well protected at the expense of the nation and certain banks may pay for the insurance of credit card debt collection employees.

To pay IRAS/GST for service?

The front page of Business Times today presented a proposal for companies to pay for official GST help.

What is the pricing?
For advance GST guidance, $525 for each query of initial 4 hours plus $131.25 per subsequent hour. Please double the charges for express service.

Why charge?
My initial response is why. Are companies or their representative in the form of tax agent or untrained accounting staff abusing GST administration with excessive superfluous queries? Does this move contribute to higher business costs? How does GST administration justify the proposed pricing? Are there similar models operated by other government agencies or statutory boards or corporatised entities? What is/are the objectives and roles of IRAS in relation to the the "bigger picture"? How will the new pricing model contribute to that bigger picture?

Why don't charge?
I humbly drawed on my experience in the property development. The architect submits plans to the various government entities for guidance and approvals for the intended development. Relevant fees are payable. You have to pay for the use of Court facilities too. Should the same be acceptable for GST's official guidance?

There maybe some justifications.

• Firstly, there is a need for a pricing mechanism to allocate resources efficiently as resources within IRAS/GST administration is finite too (just like everywhere else).
  

• Secondly, the businesses of today are relatively complex as they traverse across national boundaries. Such business would require some level of certainty in the form of official guidance to avoid resource-sapping effort trying to recover from skirmishes with law. They want to focus on doing business. Thus the “small” sum payable for that peace of mind is definitely worthwhile.

Does it increase the costs of doing business in Singapore?
Some of these companies may be paying their tax agents for advice already. As the fees are applicable to advance (and not normal) queries, I presume such queries would only be relevant to bigger and complex companies. The fees thus would be relatively nominal.

Is there a possibility that IRAS/GST recycle official guidances? No two property development applications will ever be the same. So will 2 applications for GST guidances be similar?

Other implications
The fees, when applied, may implicitly provide a check and balance on the performance of the tax agents.

The application of the fees may also change the relationship between IRAS/GST and the enquirer. When a fee is paid for an official guidance, does it imply is a higher level of responsibility? How was it done before? Were there any official guidances given out in the past? Or does IRAS/GST wait until the actual occurrence of the transaction and relevant documents submitted for review before an official judgement is given?

KPIs of IRAS

What are the key performance indices for IRAS? I will present its KPIs using the analogy of a company's financial statement.

1. The topline has grown by 11%. Total tax revenue collected for FY05-06 is $19.9bio. This is about $2bio more than FY04-05. This upward trend has been apparent over the last 5 years.
2. Its cost of sales ie. the cost to collect a $1 tax revenue, is 1 cent.
3. IRAS's revenue is now about 70% of the Group's (ie. Government's) total operating revenue of $28bio. This is higher than last two financial years' average of 65%.
4. Sectoral performance review of its topline. IRAS received $7.3bio (37%) from corporate tax, $4.3bio (22%) from income tax, $3.8bio (20%) from GST and last $1.8bio (9%) from property tax.
5. Other operating income ie. IRAS's collection of fines and penalties. The amount of penalties collected from GST violations amounted to $76.2mio (a drastic decline of 35%). The amoun of penalties collected from income tax violations amount to $61.4mio (an even bigger decline of 46%).
6. IRAS's online business is not going as plan. What online business? IRAS wishes to encourage more e-filings. The no. of e-filers among individuals declined to 785,000 from 885,000 in FY04-05 despite an increase in total no. of taxpayers from 1.3 people to 1.5 people.
7. IRAS's bottomline ie. operating surplus of $40mio is a significant 93% improvement over the previous year.

Recommendation - This company is a strong buy with significant growth expected in most sectors that it is in. All KPI measures indicate the company is more than ready for that growth with a small black mark noted on its "online business".

Are you earning >$1million income last year?

If you did, you are one of the 1,738 who earned more than a million dollars last year out of a total 1.5 million tax payers. Then sincere congratulation to you is in order from the masses out there.

The bad news is that if you are earning exactly $1,000,001, I am sorry you do look quite bad in comparison to most of the other 1,737. Why? These 1,737 people earned about $3.5billion (minus a million from u) ie. averaging $2mio per person.

So you have to work harder!

All in all, Singapore should say thank you to 1,738 of you for paying about $500mio in income taxes (albeit only about 3% of total tax revenue).

From the sour grape here, please help me to join this real Million Dollar Club.

Cheers!