Goods and Services Tax (Amendment) Bill

Order for Second Reading read.

2.31 pm

The Second Minister for Finance (Mr Lawrence Wong): Mr Speaker, I beg to move, "That the Bill be now read a Second time."

The Goods and Services Tax (Amendment) Bill 2020 covers seven sets of amendments. Two relate to the introduction of measures to enhance the Comptroller of GST’s powers to safeguard public monies and investigate tax offences. The other five arise from our periodic review of the GST regime to clarify technical rules and improve on administration.

MOF sought views from the public on the draft Bill earlier this year. We have evaluated the feedback received and incorporated them where they are relevant to the Bill. We thank the contributors for their inputs.

Let me start with the first two sets of amendments, which relate to the implementation of measures to safeguard public monies and investigate tax offences.

First, we introduce three measures to counter Missing Trader Fraud.

In other jurisdictions and in Singapore too, there have been multiple attempts to use Missing Trader Fraud to defraud the tax authorities. For example, in the European Union, Missing Trader Fraud has cost around 60 billion Euros annually. Disrupting the capacity of organised crime groups involved in Missing Trader Fraud is one of the EU’s priority crime areas.

How does Missing Trader Fraud work? Basically, all GST-registered businesses are required to charge GST when they sell goods or services. This is known as output GST. These businesses are supposed to pay the output GST to IRAS.

GST-registered businesses who incur GST on their purchases of goods and services may claim a refund of this GST from IRAS. This is known as input GST claim.

Missing Trader Fraud is a fraud scheme used by syndicates, where a party who has collected output GST and is supposed to pay it to IRAS absconds. This party is, therefore, known as the Missing Trader.

Meanwhile, parties downstream of the chain continue to make input GST claims to IRAS, on purchases that they had made.

Syndicates make the detection of Missing Trader Fraud difficult, by interposing many businesses along the chain to deter IRAS from tracing back to the Missing Trader.

Currently, businesses which IRAS have found to be involved in Missing Trader Fraud will have their input GST claims denied, as they have not fulfilled the conditions for claiming input GST. The purchases that such businesses made and are seeking input GST claims on were not genuine business transactions.

Beyond this, it is also important that we stop Missing Trader Fraud from being attempted across the value chain in the first instance. It is critical that all GST-registered businesses undertake adequate and appropriate due diligence checks, as well as precautions, to avoid being in a fraudulent arrangement. Doing so is also in the interest of all businesses, as part of good corporate governance. Bona fide businesses generally already conduct due diligence checks on their transactions.

The first set of amendments will allow us to put in place three measures to deter Missing Trader Fraud.

The first measure allows the Comptroller of GST to deny a GST-registered business’ input GST claim, if the business knew or should have known that his purchase was part of a fraudulent arrangement.

The burden of proving that the business knew or should have known of the fraudulent arrangement lies on the Comptroller, with the standard of proof being the balance of probabilities.

And I should note that this measure is similar to the approach taken in the United Kingdom and the EU to safeguard tax revenue.

The second measure introduces a surcharge of 10% to be applied on the amount of input GST denied for a GST-registered business which should have known that its purchase was part of a fraudulent arrangement. Again, this surcharge serves as a deterrent effect and we will review the surcharge quantum periodically. Other jurisdictions do likewise with a surcharge to serve as a deterrence.

The third measure allows the Comptroller to impose conditions on a business which is required to register for GST. It also allows the Comptroller to deny a GST registration, or cancel GST registration if any of the conditions imposed is breached.

The three measures under the first amendment can be found in clauses 4, 6, 7, 10 to 13, 20 and 22 of the Bill.

The second amendment enhances IRAS’s powers to seize goods for investigation of tax offences.

This amendment empowers specially authorised IRAS officers to seize or prohibit the disposal of or dealing in, any goods suspected or intended to be used to commit an offence under the GST Act. The seizure powers also include goods which may aid in the investigation or prosecution of such an offence. This prevents syndicates from using the goods to perpetuate fraud, and it is an important measure in disrupting the operations of fraud schemes.

Clauses 2, 5, 13, 14 to 17 and 25 in the Bill provide for this change.

Beyond these two sets of amendments, MOF regularly reviews the GST regime to clarify technical rules and to improve GST administration. Let me now touch on the remaining five amendments in the Bill arising from this periodic review.

The first two amendments arising from this periodic review relate to enhancing our GST rules to counteract tax avoidance arrangements.

Under the first amendment, we will remove the discretion for the Comptroller of GST to disregard or vary arrangements that are carried out with tax avoidance as one of their main purposes, and not for bona fide commercial reasons. This seeks to maintain a certain level of consistency across the Comptroller's treatment of GST tax avoidance arrangements.

The amendment also expands the tax avoidance rules to include GST avoidance arrangements that result in an earlier entitlement to input tax claims or to unjustified bad debt relief claims.

Under the amendment, tax adjustments by the Comptroller to counteract tax avoidance arrangements must be made within five years from the end of the relevant GST accounting period. The taxpayer will also be required to pay the additional GST arising from the Comptroller’s tax adjustments within one month.

These changes to our GST rules to counteract tax avoidance arrangements are found in clauses 8 and 12 of the Bill.

The second amendment further deters tax avoidance arrangements, by introducing a surcharge equal to 50% of the amount of additional GST payable as a result of the adjustments made by the Comptroller to counteract tax avoidance arrangements. That is similar to what we had just discussed and passed earlier in the Income Tax (Amendment) Bill.

Currently, there is no such surcharge – instead, the Comptroller’s adjustments under the anti-avoidance rules only restore taxpayers to their initial tax position, as if the arrangement had not been entered into. This is insufficient to deter aggressive taxpayers from taking the risk of later adjustments made by the Comptroller to counteract the tax avoidance arrangement.

Clauses 9 and 12 in the Bill provides for these changes.

The third amendment arising from our periodic review seeks to provide certainty to taxpayers, by clarifying the treatment of claims relating to overpaid or erroneously paid GST.

For instance, the GST Act currently allows a person to claim a refund of money that has been overpaid or paid erroneously as GST, such as GST that was wrongly charged on non-taxable transactions.

The amendments clarify that such claims relating to overpaid or erroneously paid GST must be made to IRAS within five years from the end of the relevant GST accounting period or the date on which the GST was paid; and that such claims are also applicable to overpaid or erroneously paid GST on imported goods.

These changes are found in clause 19 in the Bill.

The fourth set of amendments seek to encourage taxpayers to benefit from the convenience of digital services and allow them to get refunds faster. MOF will be allowed to prescribe in subsidiary legislation that refunds of GST are to be made by the Comptroller of GST to GST-registered businesses via electronic means.

And just as I mentioned for the Income Tax (Amendment) Bill, in this case an assessment of the readiness of GST-registered businesses will be made next year, and exceptions will be provided where necessary.

Clause 18 of the Bill provides for this amendment.

Finally, the fifth amendment seeks to enable IRAS to effectively carry out its official duties in administering public schemes, such as the Jobs Support Scheme. The amendment allows the Comptroller of GST to disclose information to the CEO of IRAS, or officers authorised by the CEO of IRAS for that purpose and allow these officers to access any records or documents where necessary for the purpose of these duties. This amendment is found in clauses 3, 21 and 24 in the Bill. A similar amendment was proposed for the Income Tax (Amendment) Bill just now. Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Mr Louis Chua.

2.40 pm

Mr Chua Kheng Wee Louis (Sengkang): Mr Speaker, it has been said that in this world, nothing can be said to be certain except for death and taxes and of all the forms of taxation in the market, the Goods and Services Tax being a broad-based consumption tax is perhaps one that is most inescapable to the everyday person.

In the context of Singapore, the GST is now one of the largest contributors to our operating revenues at $11.2 billion in FY 2019, behind corporate income tax at $16.8 billion and personal income tax at $12.2 billion respectively. While GST revenues were initially estimated at $11.27 in FY 2020, this has since been revised to $9.69 billion or a 14% reduction given the impact of the current economic slowdown.

Particularly against this backdrop, I agree in principle that strengthening measures to enhance the Comptroller of GST's powers to safeguard public monies and minimise the loss of public revenues is of utmost importance. The introduction of measures to counter Missing Trader Fraud and counteract tax avoidance arrangement in the GST (Amendment) Bill is thus timely.

In the EU, it is estimated that the losses from VAT fraud amounts to 60 billion Euros annually, as Second Minister Lawrence Wong has mentioned in his speech.

To this end, I would like to ask what is the Ministry's assessment of the estimated annual losses in Singapore due to Missing Trader Fraud. In addition, I am also concerned about the potential impact of the amendments to SMEs who are already facing resource constraints.

Section 20, subsection (2)(d) to (f) specify the conditions to reach a taxable person should have known that the supply made to the taxable person was part of an arrangement to cause loss of public revenues. These include whether the circumstances are such that there was a reasonable risk of the supply being part of the fraudulent arrangement and, hence, whether or not taxable person took reasonable steps to ascertain these.

However, even if the taxable person had taken reasonable steps and arrived at the wrong conclusion, it does not spare the taxable person from being taken that he should have known that the arrangement was fraudulent. This would this be potentially onerous on companies, especially SMEs who may not have the same capabilities to conduct extensive due diligence, as compared to larger companies with greater economies of scale.

Codification of what the reasonable person or reasonable steps mean would thus be critical for SMEs to not fall foul of new requirements.

Yet while we are looking to address the loss of public revenues via Missing Trader Fraud with this amendment, I would also like to take the opportunity to ask the Ministry what has been the progress of the Government's study on an e-commerce tax?

In Budget 2018, I note the Deputy Prime Minister and Finance Minister Heng Swee Keat's announcement that the Government will introduce GST on imported services with effect from 1 January 2020 or what we commonly call a “Netflix tax”. This is to make sure that our tax system remains fair and resilient in the digital economy.

For the import of goods, I noted Minister Heng Swee Keat then remarks and, I quote, "For the import of goods, there are international discussions on how GST can apply. We will review this before deciding on the measure to take."

The OECD has since endorsed new rules and frameworks for the collection of taxes on online sale of goods in March 2019. Meanwhile, COVID-19 has resulted in the dual impact to the retail sector in Singapore: first, an acceleration in the already rapid growth of the e-commerce market where online sales represented 10.9% of the latest retail sales value in August, having reached a high of 24.5% in May this year; secondly, the continued struggle of bricks-and-mortar retailers amid an uneven playing field.

As we look to support SME retailers with the Rental Relief Framework while providing support to employment via the JSS, it is perhaps now timely to look into addressing a growing source of tax leakage due to overseas online retailers and correct the key imbalance faced by tax-paying retailers in Singapore. More broadly, the liquidation of Robinson's after more than 162 years of operation here in Singapore is perhaps a grim reminder of the state of the retail landscape in Singapore today and how more needs to be done to address the various costs of doing business.

Mr Speaker, to conclude, I support the Bill and believe we are rightly concerned about the loss of public revenues as a result of missing trader fraud and tax avoidance arrangements. But the changing economic and retail landscape is perhaps a timely reminder of our need to continue addressing other forms of GST leakage and exploring other forms of revenue sources before looking to an eventual GST hike to raise tax revenues.

2.46 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, this Bill will strengthen safeguards of public monies and Singapore’s national interests.

It is more crucial now than ever in the existing financial climate to ensure that tax revenue is protected from fraud or loopholes. In doing so, this Bill draws lessons and references from similar provisions in other jurisdictions, such as the UK and Australia.

I support this Bill, which will improve GST administration and enhance the Comptroller’s powers to safeguard public monies, investigate tax offences and counter GST fraud. That said, I have four points of clarification on this Bill.

First, I would like to clarify how we are supporting SMEs’ compliance with due diligence requirements. The amendments to section 20 require businesses to undertake due diligence checks to avoid being involved in a fraud that they “should have known”. I understand the need for businesses to step up and take reasonable steps against fraud. However, big businesses and small businesses have different resources and capacity to conduct checks. What is a reasonable step for a big business and a small business may not be the same. Can Minister clarify how it will ensure that such requirements do not constitute an onerous burden to our SMEs? I am aware that the Minister plans to provide guidance for businesses on what constitutes “reasonable steps” in section 20. Beyond that, can the Ministry share whether it will offer training and industry-specific resources to ensure small businesses can still effectively conduct their due diligence checks?

My second point of clarification is on the Comptroller’s review process when investigating fraudulent arrangements. A company involved in fraudulent arrangements could face the severe penalty of deregistration. Can the Minister clarify the key considerations the Comptroller will take into account when evaluating a company’s involvement in fraud? For example, in the UK, adequate and timely checks by the company to ensure the integrity of its supply chain will be viewed favourably.

Providing these key considerations will be useful in guiding honest businesses in their due diligence checks so as to mitigate risks of an unwitting involvement in fraud. Because the level of checks expected for business sectors that are commercially risky or vulnerable to fraud and other criminality is higher, can I propose that the Minister identifies these sectors so businesses know to step up their due diligence checks and also share a separate set of key considerations businesses in these sectors can align to?

Given that we also expect more intensive checks for industries more susceptible to fraud and criminal activities, can the Minister identify such industries and share additional guidelines specific to these industries? After all, if we are going to ask more of certain businesses, it will help if we can also provide more support for their compliance. Can I also request the Minister to then share and incorporate these guidelines in the IRAS e-Tax Guide so businesses are able to access this information easily?

My third point of clarification is on the documentation businesses are expected to maintain as part of their due diligence checks. Can the Minister clarify in regulations or codes the methods and level of detail of documentation businesses are expected to maintain to be deemed to have taken “reasonable steps to ascertain whether the supply was part of a fraudulent arrangement”?

Can the Minister also clarify for how long businesses are expected to retain these documentations, given that the timeframe for the Comptroller to determine if a supply is part of a Missing Trader Fraud is open-ended? We want to avoid the situation where honest businesses do their due diligence checks but cannot back it up because they discarded or deleted supporting documents after a period of time. We also want to avoid the situation where fraudulent businesses can realistically claim to have discarded supporting documents even when no such checks were done.

My final point is a proposal for an anonymous reporting channel for whistleblowers. The Association of Certified Fraud Examiners 2018 report revealed that tips are consistently and, by far, the most common detection method for fraud. Fifty percent of the cases are detected through tips. Businesses or individuals may, in the course of their due diligence checks, come across potentially fraudulent suppliers or entities. We must make sure businesses or individuals feel safe coming forward.

Currently, it is unclear the parties who will be privy to the tip beyond the generic email provided at ifd@iras.gov.sg on IRAS' “Report Tax Evasion” website. This should be made clear to whistleblowers. And if these parties are the very target of the tip, there should be an alternate reporting channel whistleblowers can turn to. Can the Minister clarify the parties that are privy to the tips sent to the IRAS email address mentioned and whether there are alternate reporting channels for whistleblowers to report suspicious or fraudulent arrangements that are potentially related to these very officers? Can Minister confirm that this information will be reflected on IRAS’ “Report Tax Evasion” website so whistleblowers are aware of their options?

Sir, notwithstanding these clarifications, I stand in support of this Bill.

Mr Speaker: Minister Wong.

2.52 pm

Mr Lawrence Wong: Mr Speaker, let me thank Mr Louis Chua and Mr Louis Ng who have spoken in support of the Bill and the need to safeguard our GST base. Let me respond to some of their comments and suggestions.

Mr Louis Chua asked about the extent of missing trader fraud in Singapore. As at 31 December 2019, more than 300 GST-registered businesses audited have been suspected to be involved in missing trader fraud in Singapore. The total GST involved is about $450 million. Now, of these 300 GST-registered businesses, IRAS has completed its audit and investigation for about 70 businesses and the GST involved amongst these businesses is about $90 million in GST. So, those have been completed. The remaining businesses are still under investigation. So, the GST at risk of loss for this category is the remaining, that is, $450 million minus $90 million, so, it is $360 million. That is where we stand today. It is not at the same scale as the EU, but we see the trends internationally. We are concerned and that is why we are putting in place these measures and I am very happy that Mr Louis Chua also supports them.

Second, Mr Louis Chua also mentioned the possibility of doing an e-commerce tax and I am very happy that he supports this, too, because we will certainly look for ways to raise more revenues. We have already moved on GST for imported services and we will be looking at the GST for imported goods, too. So, that is something on our minds. This is something that is quite complex because the way to go about doing this, obviously, is to tax at source, right? When you buy something from an e-commerce platform, impose the GST at source and then you can ensure that GST applies even for e-commerce transactions. But if countries do not all impose such a tax, it is quite easy to circumvent. You can imagine shipments being sent to different countries in order to bypass. So, there are some complexities around this but we are studying this very carefully with a view towards putting in place a proper regime to ensure that the e-commerce transactions are also subject to GST. We will be updating the House in due course when we are ready with this.

Next, Mr Louis Chua and Mr Louis Ng both highlighted concerns about the compliance burden that would be imposed on SMEs and we are equally concerned. So, let me share some of the ways in which we are intending to deal with this.

With regard to, for example, guidance to SMEs on the due diligence checks that they have to make, how can we provide more clarity? Today, IRAS already provides and makes available such guidance, and it will continue to educate taxpayers on the kinds of due diligence checks that are necessary. Besides providing ready information on its website and through the media, IRAS has been engaging industry associations and tax intermediaries to raise industry awareness. Newly GST-registered businesses can also access e-learning and other resources on IRAS' website, so that all these will help them to understand and better comply with the GST obligations.

As is the case with previous legislative updates, IRAS will publish an e-tax guide soon after the Bill comes into force and this will provide businesses with the latest guidance. The e-tax guide will highlight examples of risk indicators that a business ought to take notice of in relation to a supply that might be part of a missing trader fraud arrangement. So, hopefully, SMEs will start to be more aware of what they should be looking out for and we will also provide some illustrations of the due diligence checks that businesses should take in response to the risk identified. And the Comptroller of GST will take into account all the facts and circumstances of each case, including the firm's circumstances as an SME, where relevant, in considering what is reasonable.

IRAS will also work with interested industry associations to conduct dedicated outreach sessions and businesses may contact IRAS if they require further information.

Mr Louis Ng sought clarification on how the Comptroller of GST will assess whether a GST-registered business knew or should have known that its purchase was part of a fraudulent arrangement. The Comptroller's assessment depends on the facts and circumstances of each case and will include taking into account all the relevant considerations, like whether due diligence and risk assessment checks were performed by the business, what were the results of these checks, to what extent were the checks appropriate, adequate and timely to address the risks identified and whether the taxable person took appropriate action in response to the results of these checks.

Under the proposed arrangement, the burden of proving that the GST-registered business knew or should have known of the fraudulent arrangement lies on the Comptroller, based on the balance of probabilities. And businesses that disagree with the Comptroller's decision may apply for review and revision of the decision under section 49 of the GST Act. And if businesses disagree with the Comptroller's review and revision of the decision, they then may appeal further to the GST Board of Review. And, again, if they are dissatisfied with the decision of the Board, they can appeal to the High Court.

Mr Louis Ng asked for the level of detail and duration that GST-registered businesses must maintain the documents or the records of reasonable steps that they have taken to determine whether a supply made to them was part of a fraudulent arrangement. So, on record-keeping of documents, what constitutes reasonable steps?

As advised on IRAS' website, businesses today must already keep proper records and accounts of business transactions. This includes retaining the source documents, accounting records and schedules, bank statements and any other records of transactions connected with the business. Business should, generally, maintain records of the steps taken to ascertain whether the supply made to or by the business was likely to be a part of a fraudulent arrangement and this includes documents detailing the risks assessed, the due diligence checks that were performed and the actions and precautions taken in response to the results surfacing from these checks. This information should be made available upon request by IRAS to ensure there is proper accountability for decisions made. Again, IRAS will make all this information available in its e-tax guide.

On the duration of how long the record should be maintained, under the GST Act, GST-registered businesses are required to keep the records for a period of five years from the end of their prescribed accounting periods.

Finally, there was a suggestion from Mr Ng about an alternate anonymous channel for whistleblowers, particularly if they wish to report IRAS officers themselves who are involved in a fraudulent arrangement. As Mr Ng highlighted, IRAS' Investigation and Forensics Division maintains a mailbox that businesses or individuals may utilise to notify IRAS of any possible case of tax evasion or tax avoidance. This information including examples of signs of tax evasion and information that may be useful to IRAS is published on IRAS's website. IRAS takes every report of tax evasion seriously, and if the whistleblowing relates to an IRAS officer or a staff of IRAS' vendors, the whistleblower can write directly to the Director of IRAS' internal audit branch. We wish to assure Mr Ng that the whistleblower's identity and all information and documents provided would be kept confidential and subject to an independent evaluation within IRAS. Alternatively, if the whistleblower suspects that an IRAS officer is involved in a corrupt act, the whistleblower may lodge a complaint with the CPIB.

Mr Speaker, to conclude, the proposed amendments to counter Missing Trader Fraud are necessary to safeguard public monies. It is critical that all GST-registered businesses undertake adequate and appropriate due diligence checks as well as precautions to avoid being involved in a fraudulent arrangement. These are critical steps that we will need to safeguard and preserve our revenue base. Mr Speaker, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lawrence Wong].

Bill considered in Committee; reported without amendment; read a Third time and passed.