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MOF response to BT Forum ?Zero-rate GST on basic food items?

09 May 2008

In his letter ("Zero-rate GST on basic food items", BT 30 April 2008), Mr Manmohan Singh suggested that if GST regulations can be introduced to zero-rate trust services, computer server equipment and annual meetings of international organizations, why not basic food items to help the poor and the unemployed cope with inflation.

2. GST is a tax on domestic consumption of goods and services. Zero-rating is accorded only to overseas consumption. Trust services and web-hosting services provided to overseas persons are thus zero-rated. If the same supplies were made to local persons, 7% GST would still be applicable. GST is also payable on the supplies of goods and services for all international events in Singapore, including the 2006 IMF-World Bank Meetings and other events such as the Singapore Airshow. However, for the 2006 IMF-World Bank Meeting, as part of the local costs incurred by the IMF/World Bank which the host country had to pay for, the Government reimbursed the two organisations for the GST they had paid.

3. Zero-rating the GST for basic food items is not the best way to help the poor. Lower income households account for only 7% of the total GST that is paid on food. Zero-rating food items would thus end up benefiting the higher income disproportionately, making it an inefficient way to help those who really need it. Further, most of the spending of lower-income households is not on basic foods. Thus zero-rating the GST for such items will only have a limited impact in helping these households.

4. This is why the Government's approach has been to help the lower-income directly, through the GST Offset Package and targeted measures under ComCare. Families who need additional financial assistance may approach the Citizens' Consultative Committee (CCC), the Community Development Council (CDC), self-help groups or voluntary welfare organisations, who are in the best position to assess the needs of such families and tap on the CCC ComCare Fund if necessary. This way, we can provide the lower-income households with far more substantial assistance, which they can spend on food or other items according to their needs.

5. The Government is concerned about inflation and the rising cost of living. That is why this year' Budget included the Growth Dividends and other relief measures, targeted especially at lower- and middle-income Singaporeans. Together with measures such as the GST Offset Package announced last year, the Government will be giving out more than $3 billion in benefits to Singaporeans this year. Lower and middle income households will receive benefits that exceed the increase in the costs of living that they face.