Plugging Revenue Leakage in Goods and Services Tax Act 1993 in View of Recent Court Decision
Ministry of FinanceSpeakers
Summary
This question concerns Mr Edward Chia Bing Hui’s inquiry on whether new legislation is needed to address revenue leakage in the Goods and Services Tax Act 1993 following a recent court decision. Deputy Prime Minister Lawrence Wong explained that GST applies to the value of supply, where discounts are generally taxed at the discounted price unless non-monetary consideration is exchanged. In the case of Herbalife International Singapore Pte Ltd vs Comptroller of Goods and Services Tax, the High Court ruled in favor of the company based on its specific facts. This decision overturned an earlier ruling by the Goods and Services Tax Board of Review that had favored the Comptroller’s argument for taxing the products at full price. The Inland Revenue Authority of Singapore is currently studying the High Court’s judgment to determine the appropriate next steps regarding tax policy or legislative amendments.
Transcript
7 Mr Edward Chia Bing Hui asked the Deputy Prime Minister and Minister for Finance whether the Ministry will consider new legislation to plug the revenue leakage gap in the Goods and Services Tax (GST) Act 1993, in view of the recent Court decision in Herbalife International Singapore Pte Ltd vs Comptroller of Goods and Services Tax.
Mr Lawrence Wong: The Goods and Services Tax (GST) is a tax on domestic consumption of goods and services. It is chargeable on the value of supply, whether the consideration received is monetary or non-monetary. Where a discount is given on a supply, GST is generally chargeable on the discounted price. However, if the discount is granted on the condition that the customer meets certain obligations imposed, which results in tangible goods or services being provided to the seller, this is a form of non-monetary consideration paid for the supply. For example, a seller may supply goods to a buyer at a discount from the retail price in exchange for the buyer’s provision of advertising or marketing services to the seller. In such instances, GST should be charged on the full retail price.
The issue in the case of Herbalife International Singapore Pte Ltd vs Comptroller of Goods and Services Tax is whether GST should be charged on the discounted or full price of products sold by Herbalife International Singapore Pte Ltd (Herbalife) to its members.
The Comptroller of GST had argued that GST should be charged on the full price of the products, and the Goods and Services Tax Board of Review had earlier ruled in favour of the Comptroller.
The High Court subsequently ruled in favour of Herbalife upon its appeal, based on the specific facts of the case. The Inland Revenue Authority of Singapore is studying the judgment before deciding on its next steps.