This may sound attractive, but there are two problems:

1. Exempting basic necessities is an ineffective redistributive tool, as it does not effectively target support to those with greater needs. It benefits the well-to-do more, because they spend more on everything, including basic necessities.

2. A multi-tiered GST system leads to highly arbitrary distinctions between products, and creative efforts by businesses to get their products classified in lower tiers. Examples of disputes in other jurisdictions with multi-tier systems include whether mozzarella pizza toppings should be classified as “cheese” (and charged at a lower GST rate) depending on its vegetable oil content. This makes the system onerous to implement, unnecessarily complicating our GST system and increasing businesses’ compliance costs, which may eventually be passed on to consumers.

We have instead designed a fairer and more effective GST system, tiered by income, such that lower-income households pay a much lower effective GST rate than higher-income households. This is achieved through the permanent GST Voucher Scheme, and GST absorption on publicly subsidised education and healthcare.