Wednesday, February 09, 2011

Should your money be taxed more than once?

Consider this an open suggestion...

In Singapore, like most other countries, the moment you start earning, you will have to deal with taxes.

First tax that comes about will be the "income tax". The only tax that makes the most sense for any nation or country. This allows the government to take a little cut from the income of any local resident working in its country. This tax, in my opinion, is fair.

So for every dollar earned, there is already a tax imposed by the government.
In my honest opinion, that is the only tax necessary.

But this is not enough, in Singapore, we have a compulsory pension scheme whereby we commit 20% of our salary income which has already been taxed to the government pension board that uses, this 20% and the additional 15% from the employer, to invest, allowing them to reap higher investment returns that the meagre interests that is earned to the working resident.

This 35% is still considered fairly acceptable since it's a form of forced savings and it comes in very handy when it is time to buy a house, regardless government or private property.

Now the resident of this little nation gets only 80% of the money that was taxed 100%. This money earned, that was taxed once already, has to go to expenditure of the working resident, ie commuting to work, groceries, clothes, etc.

Now consider this, whatever $$ that was earned and taxed, now upon spending it for necessities or luxury, this expenditure will be taxed again! What this tax is called is the GST (Goods & Services Tax). Now its at a rate of 7% ( as at Feb 2011 ). And it is increased at a rate of 2% almost every 2 years.

Some will argue the fact that most developed nations have similar taxes of higher percentage than the small amount of GST that our government is imposing of every dollar spent. But have they not seen the difference in the rate of increase of our GST vs the rate of increase of other developed nations?

A good example will be the United Kingdom, where the equivalent VAT(Value Added Tax) was kept stable at 17.5% for the longest time >20 years before it was adjusted to 20% only very recently.

And if one may ask how can one ask of such taxes to be stable and not be increased on a bi-annual basis. Or perhaps the question should be presented in this manner.

"What is empowered to the people that can ensure that their government does not increase taxes so often?"

If I may quote the life of a late comedian as an example, Andy Kaufman. No doubt that he was a genius, but if he was not "as popular as he was", he "could not have pulled off that many stunts that was testing the limits" of both his employers, the TV Network, and the viewers whom he had pulled so many stunts and pranked on them.

Though each time before an election, a GST increase offset package is given to the residents, shouldn't this offset package be in ratio with the salary earned? Since the more you earn, the more you spend and more of the salary goes into GST than lower income earners?

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