GST paves the way to an expanding bureaucracy

GST (Goods and Services Tax) has become a buzz word after its first introduction by the Chief Financial Secretary for the public consultation. Unlike other controversial issues such as the quest for universal suffrage, GST invites objection from people of different social classes ranging from the poor at one extreme to the well-off at the other. The greatest beneficiary of GST is accountants who have voiced their full support for this notorious new tax.

The pros and cons of GST have been widely mentioned by commentators in the last few weeks. The pros include the broadening of tax base and the reduction of profit tax and income tax from those prominent tax payers at present. Through spreading the source of revenues, it can also help Hong Kong to maintain high credit ratings by international benchmarking institutes such as Standard and Poor’s. The cons include the disruption of our simple taxation system. The regressive nature of GST means that the percentage of tax you pay actually falls as your income rises. This is because the tax is on what you spend, not what you earn, and low-income people tend to spend more of their income while high-income people can afford to save. The implementation of GST is a nuisance to business owners especially for those who run small business. They have to divert extra resources on document preparation and seeking professional advice. Therefore, GST must bring a negative impact to our business environment.

The above are only extracts of comments from people of different sectors. Whether the arguments have ground depends on the availability of relevant supportive evidence. Here I am not going to explore the details of their arguments. My concern is that the number of tax payers will be going down in our aging population. The Government’s intention of implementing GST is to include those retired into the tax net. Is it fair to them? In particular to the middle class, they have already paid high income tax before retirement. Owing to the high land price, they spend most of their savings to buy a flat in which a considerable amount goes into the Government’s pocket. Today, they retire and they are charged of GST. The poor middle class is going to be exploited again!

GST also paves the way to an expanding bureaucracy. The introduction of new tax means more administrative cost. An expanding bureaucracy will be a result of the implementation of GST. With the introduction of a new revenue source, there is less incentive for the government to think of budget cut and explore other revenue sources when a budget deficit is imminent. I am worried that the bureaucracy will simply see the rise of GST rate as a solution to all problems in public finance.