Goods and Services Tax (Amendment) Bill

Order for Second Reading read.

4.47 pm

The Senior Minister of State for Finance (Ms Indranee Rajah) (for the Minister for Finance): Mr Speaker, on behalf of the Minister for Finance, I beg to move, “That the Bill be now read a Second time.”

The Goods and Services Tax (Amendment) Bill 2017, or the GST Bill in short, provides for amendments to improve tax administration, ease business compliance or clarify existing legislation.

A public consultation exercise on the draft bill was held from 12 May to 4 June this year. The Ministry of Finance (MOF) has evaluated the feedback received and, where relevant, incorporated them in the final Bill.

The Bill contains three key amendments to improve tax administration. These are:

(a) the extension of customer accounting to prescribed supplies commonly used in GST fraud;

(b) the requirement for electronic record keeping and additional invoice details for selected businesses; and

(c) the provision for the monthly penalty of $200 for late submission of GST returns to commence immediately after the due date for filing.

I will deal with each of these in turn.

First, we will extend customer accounting to prescribed supplies commonly used in GST fraud. Currently, GST-registered businesses charge GST on taxable supplies when they sell to other businesses. This is the output tax. Businesses which purchase such supplies consequently pay GST on those purchases. This is known as the input tax. They are allowed to offset the GST they pay for their purchases against the GST they collect on their sales and pay the net difference to the Inland Revenue Authority of Singapore (IRAS).

The way it works is as follows. Let us, say, we have a GST-registered business "A". "A" sells taxable supplies at a price inclusive of GST of $8 to another GST-registered business "B". "B" sells the goods to customers like you and I at a higher price because he needs to make a profit and charges us GST of $9. In this situation, "A" must pay to IRAS the $8 output tax which he collected from "B". "B", in turn, must pay IRAS the output tax of $9 which he collected from us, but he can offset that against the $8 input tax which he paid to "A". So, at the end of the day, "B" only needs to remit to IRAS the difference between his output GST, what he charges his customers, and his input GST, which is what he paid "A", and that net is $1. So, this means that at the end of the day, IRAS collects a total of $9 GST from the entire transaction: $8 from "A" and $1 from "B".

However, IRAS has come across cases where "A" absconds with the GST collected from "B", and businesses like "B" further along the supply chain continue to claim the input tax. When that happens, IRAS is now short by the amount of tax which "A" has absconded with. So, using the example above, if "A" absconds with the output tax, but "B" continues to offset his input tax, it means that, at the end of the day, IRAS only receives $1 instead of the $9 which should rightfully have been paid to it.

The proposed amendments seek to avoid this scenario from happening by introducing customer accounting. Under customer accounting, GST-registered sellers like "A" will no longer charge GST on the sale of prescribed supplies to GST-registered business customers like "B". Instead, the GST-registered business customers, that is, "B", will self-account to IRAS for the GST chargeable, as output tax and, at the same time, claim input tax on these purchases, which will exactly offset the output tax. This will deter fraud schemes, such as the scenario described earlier.

Customer accounting will not apply to all goods and services. At this stage, customer accounting will be applicable for supplies of mobile phones sold without mobile subscription plans, memory cards and off-the-shelf software. These goods are commonly used in GST fraud. We will monitor the situation and assess if there is a need to prescribe more goods or services, taking into consideration the impact on businesses. Clauses 2 to 4 of the Bill provide for the changes.

Second, we will amend the Act such that the Comptroller can require selected businesses to maintain an electronic inventory system with details of sales and purchases. The Comptroller can also require additional details, such as the model and serial number of the goods, to be provided in invoices. These additional requirements will facilitate the identification of goods in the event of a GST audit and apply to selected businesses identified on a risk assessment basis. These businesses will be informed in writing of the requirements, and sufficient time will be given for implementation. Clauses 5 and 7 of the Bill provides for the changes.

Third, to deter late filing, we will provide for the monthly penalty of $200 for late submission of GST returns to commence immediately after the filing due date. Currently, a penalty of $200 is imposed for each completed month that the return remains outstanding. A GST-registered business is not penalised even if it is late in filing its return after the filing due date, as long as it files within one month of the due date. This is unfair to businesses which respect the due date as the due date and file on time. A $200 penalty imposed at the point of the GST filing due date will deter late filing. Clause 9 of the Bill provides for the change.

Another administrative change will provide for the basis to implement an opt-out approach for digital GST notices. As digital tax notices for property tax, GST and income tax will be rolled out in phases, starting with property tax, I will elaborate on this change in my speech on the Property Tax (Amendment) Bill. The remaining legislative changes are intended to ease business compliance or clarify existing legislation. Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Er Dr Lee Bee Wah.

4.54 pm

Er Dr Lee Bee Wah (Nee Soon): Mr Speaker, Sir, easing business compliance is one of the keys towards encouraging business development and startups in Singapore, and I am pleased to note that the authorities are constantly trying to clarify and simplify procedures to make the process a smoother one. Additionally, as we strive towards our goal of a Smart Nation, with digitalisation as one of the keys to achieving this, we should encourage and empower businesses to make use of existing technologies for administrative procedures.

The Prime Minister’s National Day Rally speech has sparked much interest and discussion about going cashless. This reminds me that, years ago, we started our pursuit for a paperless society when consumers were encouraged to switch to receiving their bills in digital formats. This was not only to support environmental conservation, but also to make retrieval of records and transactions much easier for both consumers and business entities. Today, numerous apps have been created for the convenience of checking bills and even paying them.

If consumers can benefit from going paperless, certainly, so can businesses. Having tax notices in digital formats will make record keeping more secure and manageable. Meanwhile, businesses may still opt out of receiving their tax notices in digital formats if they prefer hardcopies. This offers flexibility for those who may require time to adapt to the technology. Understandably, making physical copies an opt-out option is a move to push businesses towards the digital format.

However, I have reservations for small and medium enterprises (SMEs) and microenterprises. Some of these firms hire administrative employees who wear several hats. And some of these employees are elderly, or even foreigners, and they may not be tech-savvy or know enough English to manoeuvre the digital options or choose to opt out. With many other administrative matters to cope with, they may then overlook the matter of paying taxes. Another concern is that with the rise of scam and fraudulent activities on cyber platforms, such as emails, this could lead to another problem among those who are less informed.

This then brings me to the next matter – the monthly penalty of $200 for late submission of GST returns. Previously, this penalty was imposed on outstanding returns starting from a month after the filing due date. With the amendment, the penalty will commence immediately after the filing due date. I would like to ask for the rationale behind this enhanced penalty, especially together with the change to an opt-out system. What are the companies that have been falling behind payment?

If they are mainly SMEs and microenterprises, this will become an undue burden for them. Aside from higher penalty, we should find out the reasons for the late payments and see what can be done to help companies improve on this aspect. These companies may be facing financial challenges, for example.

Having worked with as well as interacted with employers and employees in many SMEs, it is quite apparent that they have to deal with many challenges in these rapidly changing times. From the labour crunch to digitalisation to administrative matters, these companies are facing pressures from multiple angles and they are struggling to stay afloat, let alone make profit. For all the schemes that are available, some companies continue to be left behind. To create an inclusive and welcoming business environment, we really have to do more outreach and display more empathy. Mr Speaker, Sir, in Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] This amendment will make digital notices as the default mode of notification and, at the same time, take away the one-month grace period for late submission. As a result, will some SMEs overlook the notices from IRAS and end up being fined? Can the Minister tell us whether SMEs account for the majority of companies that have late submission over the years?

Before taking away the grace period, can the authority adopt other means to help SMEs submit their tax returns on time?

(In English): Ultimately, the amendments are clearly designed for greater convenience of businesses with their long-term interest in mind. I believe that many of the affected businesses would eventually ease into the changes and, hence, Sir, I support the amendments.

Mr Speaker: Ms Thanaletchimi.

5.00 pm

Ms K Thanaletchimi (Nominated Member): Speaker, Sir, it is, indeed, commendable that the Government conducted public consultations prior to debating the Bill in this House and I welcome the Bill in its entirety. Of the 41 suggestions received, 30 of which were accepted with consequential revisions made to the draft text of the Bill. I applaud the consultative effort that went into proposing a well-calibrated amendment.

I support the move towards electronic notifications as changes to the framework for such tax notifications to be digitalised allows for alignment towards the National Smart Nation goals and aspirations. Having said that, it is imperative for us to recognise that not the whole of the society will be ready for a total transformation to digitalisation and, therefore, no one in the society should be left isolated and helpless.

As such, it is good that the options for physical copies are still made available, especially for those who face challenges with the digital medium or are unable to catch up with the changes and can still have the traditional form of notification. For this, I would like to suggest a deeper engagement with the community and also with the unions so as to assist in communicating the opt-out plans for less tech-savvy residents to continue to receive hardcopy notifications. This may minimise or prevent further administrative delays resulting from late tax returns should the less tech-savvy residents be unaware that the notices had been sent.

Sir, though I welcome the Bill, I would like to seek the following clarifications.

Firstly, if GST treatment for sale of Government land is to be based on approved use of land and not building, does this translate into higher cost for businesses and individuals? How would property prices be invariably affected? Is there any mitigating plan if property prices were to rise as a result of this change?

Secondly, if the Government were to extend customer accounting to counter fraud, particularly for mobile phone retailers, would this drive up business cost for such SMEs? Will there be any form of transitional grants to help these companies to ready them for adoption of standards/technology to counter the impact of this change?

Thirdly, on clause 9 of the GST Bill to amend section 60 for the monthly penalty of $200 to kick in if GST is not filed within one month after the end of accounting period, instead of two months, to be equitable to taxpayers who pay on-time, perhaps consideration can be made for the filing period to be two months after the accounting period as SMEs may have lesser resources and more difficulty in meeting the deadline. Speaker, Sir, in conclusion, notwithstanding this, I support the Bill.

Mr Speaker: Mr Louis Ng.

5.03 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, I recognise the efforts in this Bill to improve our tax system, particularly to ease burdens on all fronts – for business compliance, for administration by IRAS officers and for the experience of the taxpayers.

The move towards further digitalisation is also a laudable one, in line with our Smart Nation initiative. The changes are also great examples of how the Government should take the lead in going paperless for the environment. I am in support of the "opt-out" system for the digital tax notices and the move towards electronic recording keeping. I believe and hope that we will do the same for other Government services and functions. Sir, I have a few clarifications to seek.

Firstly, the Bill seeks to remove the grace period of one-month before the $200 penalty is imposed. As Er Dr Lee Bee Wah has raised, this can be a hefty sum for SMEs, particularly as companies may require time to get used to digital notices reminding them to file their taxes. More importantly, I would like to ask for the reasons behind this change, given that tax compliance in Singapore remains high. According to IRAS, tax arrears in 2016 were kept at 0.68% of net tax assessed, and that this was due to a focus on maximising voluntary compliance.

Secondly, on the amendment to deter GST fraud schemes involving the supply of mobile phones and other goods, while I understand the importance of deterring fraudsters, these black sheep may represent only a small percentage of the entire industry.

These sweeping changes proposed by this Bill may cause disruptions to the majority of businesses, which are largely compliant. I would like to ask the Ministry if they have received suggestions about this during the public consultations and whether other alternatives were considered.

Lastly, I understand that with the rise of e-commerce, some countries, such as South Korea, Japan and Australia, have amended legislation to collect GST on goods purchased online from foreign companies. Most recently, in September 2017, Malaysia also announced plans to tax foreign digital service providers, such as online shopping sites.

As we propose this round of amendments to the GST Act, I would like to ask if the Ministry is also considering making similar changes in Singapore.

A report by Temasek Holdings and Google showed that e-commerce in Singapore was valued at S$1.4 billion in 2015, with a projected hike to S$7.6 billion by 2020. This means that a tax on cross-border goods could represent a sizeable revenue stream for the Government.

Industry-watchers have proposed changes, such as requiring foreign e-commerce companies to register and charge GST for these cross-border transactions or reducing the current GST exemption on the import of goods worth $400 or less.

Members of the public have been talking about this and imposing this tax may not sit well with consumers. However, a tax on discretionary spending may be less painful than alternative measures to collect additional tax, such as a blanket increase in GST.

Sir, Singapore’s tax system has always been well-regarded. IRAS has been operating efficiently with the cost of collecting taxes remaining at a steady low, and tax compliance in our country remains high. I believe our tax regime will only be further strengthened through this variety of changes, and I stand in support of this Bill.

Mr Speaker: Senior Minister of State Indranee Rajah.

5.07 pm

Ms Indranee Rajah: Mr Speaker, I wish to thank the Members who have spoken on the Bill and for their support. Let me now address their comments.

On the issues raised for the proposed amendment concerning digital tax notices, as this runs across all three tax Bills, I hope the Members would not mind if I address this in the following Bill, that is, the Property Tax (Amendment) Bill, which actually sets it out in more detail. And I believe these three Members are also speaking on that Bill.

Er Dr Lee Bee Wah, Ms Thanaletchimi and Mr Louis Ng spoke on the difficulties that SMEs and microenterprises might face on the submission of the GST returns. The change is part of our periodic review of the GST system to improve tax compliance and to be fair to businesses that respect the due date and file on time.

SMEs and microenterprises are unlikely to be adversely affected by this change for two reasons. First, 94% of GST returns are filed on time, which shows that the majority of GST-registered businesses do not have problems complying with the filing due date.

Second, most SMEs are not liable for GST registration. Compulsory GST registration is only required for businesses that have annual turnovers of more than $1 million. For those who choose to volunteer for GST registration, we encourage them to be compliant with our tax rule. Businesses which face financial difficulties can contact IRAS to discuss alternative payment arrangements.

Mr Louis Ng and Ms Thanaletchimi noted that the amendment to deter GST fraud might cause disruptions and increase business costs to the majority of businesses which are largely compliant. Mr Louis Ng asked if we received suggestions about it during our public consultations. Of the 41 suggestions that we received on the Bill, 30 suggestions or 73% were on customer accounting. We accepted 24 of these 30 suggestions.

We understand the disruption and increased compliance cost to businesses and have studied the practices in other countries before proposing this change. The type of GST fraud that we seek to deter has been encountered in the European Union (EU). In response, many EU countries have applied customer accounting, or what they call domestic reverse charge, to similar supplies of goods.

To help businesses cope with the change, we have postponed the implementation date of customer accounting from 1 January 2018 to 1 January 2019. This will provide more time for businesses to adjust. We also raised the threshold for customer accounting to apply from $5,000 to $10,000. What this means is that the supplier will continue to charge GST to GST-registered customers on sales of prescribed goods that are $10,000 and below, and customer accounting will only apply if these sales are above $10,000. This will reduce the compliance burden on retail businesses, including mobile phone retailers, to carry out checks on small purchases. Further, mobile phones sold with subscription plans will be excluded from customer accounting to reduce the impact on affected businesses.

IRAS has also published an e-tax guide and will reach out to businesses trading in such goods. To help businesses with system changes, IRAS will work with standard accounting software vendors on upgrading their software to cater for customer accounting.

Ms Thanaletchimi also asked whether the change in the sale of Government land with existing buildings to be demolished would affect property prices and translate into higher cost for businesses and individuals. The change is a minor amendment to clarify existing policy. If a building on a land to be developed is demolished, the GST treatment on such sale should follow the same GST treatment of the vacant land rather than the approved use of the building. There will be minimal impact to businesses and individuals. In cases where such sales of land would now attract GST, GST-registered developers can claim the GST paid from IRAS as input tax.

We note Mr Louis Ng's comments on GST and e-commerce. The Minister for Finance, in the Budget this year, mentioned that with increasing digital transactions and cross-border trade, some countries have taken steps to adjust the GST system to ensure a level playing field between their local businesses which are GST-registered and foreign-based ones which are not. We are studying how we can do likewise. 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. – [Ms Indranee Rajah.]

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