THE INTERNATIONAL EXPERIENCE AND ITS RELEVANCE TO THE PROPOSED CONSUMPTION TAX IN SINGAPORE

This thesis is concerned with the proposed introduction of a general consumption tax in Singapore. Specifically, it analyzes the lessons that the international experience with general consumption taxes holds for the nature and structure of such a tax proposed for Singapore. In the last decade a trend towards greater reliance on consumption taxes has emerged in many countries, most notably in the Organistion for the Economic Co-operation and Development (OECD) member states and in the Asian NIEs, the countries with which Singapore usually compares itself. Such a trend has been characterized by a shift towards value added tax, (henceforth VAT), a form of imposition which since its first introduction in France in 1954, has rapidly spread to more than 60 countries in all continents. A brief discussion of the tools by which the desired shift in the tax mix may be achieved (Chapter 2), suggests that for Singapore however, the realistic option is between a RST and a VAT extended at the retail level. In recent years a large body of literature has pointed to the superiority of the VAT over the RST. However, in the choice as well as in the design of a tax, proper consideration must be given to the real social, political and economic conditions under which it is to function. Therefore the first part of the thesis, analyzes the experiences with VAT of a representative group of countries. The analysis aims to identify designing and implementation of issues, and solutions and environmental conditions relevant to Singapore. The experiences reviewed are that of The European Community, where VAT was first introduced; Italy, where compliance problems as well as some designing issues are highlighted; Sweden, which switched from RST to VAT; South Korea, an NIE, the first Asian country to introduce a VAT; and New Zealand, among the latest additions, which is considered the real world VAT closest to the ideal model. The thesis suggests that when the implementation of a general concern firms, consumption tax is concerned, areas of traditional for other countries such as agriculture and small are unlikely to have major relevance in Singapore. Here, however, such issues as the treatment of tourism and financial services is likely to become a serious problem. Even more relevant is the problem of intergenerational equity that a consumption tax introduces in connection with the rapidly aging population and with the principle of individual financing adopted for social security in the country. Discussion on the pros and cons of a VAT and a RST in Singapore shows a well balanced set of arguments. However, examination of the performance of VAT in different frameworks and environments suggests that the option of a RST should not be ruled out on an a priori basis.

Author dc:creator

• ANTONIO STRAZZULLO