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Old 28-12-2011, 12:20 PM
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Originally Posted by Unregistered View Post
GST is a fair tax because it taxes those who spend. Obviously the rich spend a lot more than the poor on cars, houses etc so it causes them to pay more taxes. It encourages people to work hard and be thrifty. If you work hard and don't spend, you become rich.

The poor should be directly supported by the Govt to offset the impact of higher taxes... and they are.

This stupid concept of tax the poor to pay the rich is an example of the idiotic thinking opposition come up with when they have no ideas.
I don't particularly dislike the GST as a tax instrument because it serves its purposes. But it is certainly not the finest taxation instrument in its ability to differentiate treatment between the rich and the poor. That the rich would spend more hence pay more GST argument doesn't quite cut it. Yes, it is true that the rich pays more in absolute terms. But the impact on the poor is greater, and this is what naysayers are harping about. Doesn't take a genius to understand this but let me give an illustration here anyway for the avoidance of doubt.

Assuming there are 2 families. A has household income of $1000. B, $10,000. GST at 7% means A pays $70 in GST. B pays $700. One must realise that the $70 that A pays has a greater impact on family A, vis-a-vis $700 in the case of family B. For a poor household, $70 difference could mean whether the electrical bills are paid. However in the case of B, it could be just a difference of what car to drive, whether to go on a vacation.

Simply put, if both A and B shared the same utility function, A is definitely on the lower end of the curve and the delta brought about by a 7% GST is definitely much greater than that for B.

The other way of looking at it is that it is no different from imposing a uniform income tax structure on the rich and poor. This effect is exacerbated because B is likely to have the ability to save a larger proportion of their household income as compared to A. Hence, while A pays 7% of their household income on GST, B probably pays less than 7%.

Does this encourage A to save more and become rich? No, A has no choice but to spend all the money in order to survive. B on the other hand is able to accumulate wealth as it can afford to save.

I suppose this is also why some people are proposing GST exemption for basic necessities like rice, etc. I haven't thought about whether this is a better approach but I can certainly understand the motivation.

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