Goods and Services Tax (Amendment) Bill

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

The Goods and Services Tax (Amendment) Bill 2024 makes amendments to address the issue of wrongful charging of Goods and Services Tax (GST) on fees charged by the Government and statutory bodies, excluding Town Councils, which I will refer to collectively as "Government fees".

As Members are aware, Ministry of Finance (MOF) announced on 14 February 2024 that GST charged on 18 Government fees across six agencies would be refunded. This arose from an internal review of regulatory and ancillary fees that charge GST, where we discovered that GST should not have been charged on these 18 fees, as they are regulatory in nature.

Such regulatory fees should not be subject to GST as they are imposed for the purposes of control and regulation. In contrast, fees for provision of services, such as for the rental of public sports facilities, should be subject to GST. This approach ensures parity in tax treatment, where services that can potentially be provided by, or outsourced to the private or non-Government sector, are subject to GST. Some countries which levy GST also adopt similar principles.

We have, thus far, left it to agencies to self-assess and determine what constitutes a regulatory fee, with guidance provided through Government circulars. However, agencies may not always be clear where to draw the line. This is not ideal and can give rise to wrongful charging of GST, as was the case for the 18 fees.

This is why, in response to several Members' earlier Parliamentary Questions on how the Government would take steps to prevent this problem from recurring in future, I explained that MOF will amend the GST Act to simplify and clarify the rules around when GST should be charged on Government fees.

Sir, we will centrally prescribe a list of non-taxable Government fees. Fees in the non-taxable list would include those for applications to confer approval for the conduct of a regulated activity. For example, applications for professional licences and their licence renewal fees will be non-taxable, as they confer applicants the right to practise in the regulated profession. This would also include the 18 regulatory fees that we are refunding. All other fees that are not part of this list will be subject to GST. This is provided for under clause 2 of the Bill.

As part of this change in legislative approach, moving forward, MOF and the Inland Revenue Authority of Singapore (IRAS) will henceforth work closely with agencies to assess their fees instead of allowing self-assessment by agencies.

MOF had earlier reviewed all the regulatory and ancillary fees that currently charge GST and announced in February the refund of GST on 18 fees, where GST was wrongly charged. We are now working with agencies on the remaining regulatory and ancillary fees, which do not charge GST. There are in total more than 1,700 such Government fees, which MOF is in the midst of reviewing.

If Parliament approves this Bill, the initial list of non-taxable fees will be published in the Gazette in end-April, when the Bill comes into force. MOF will continue to work with agencies to progressively prescribe their regulatory fees in the non-taxable list and we aim to complete this by September 2024.

All fees that are not prescribed in the non-taxable list, will be subject to GST. There are three categories of such fees.

The first category, which is the vast majority of fees, comprises fees for services provided by the Government, which are clearly subject to GST and are already charged with GST today. There is no change in the treatment of these fees. Examples are fees for the rental of public sports facilities which I mentioned earlier.

The second category comprises fees that are charged with GST today, but where there has been inconsistency in the interpretation of the law by agencies. Let me give an example.

Agencies may charge fees for examinations that an individual must undertake prior to being licensed as a practising professional in a regulated industry. Some agencies have assessed such examination fees as taxable, whereas others have not – arising from differing interpretations of the GST Act. Based on our policy intent, as I have clarified above, such examination fees should attract GST. Only the eventual licence fee that confers applicants with the regulatory approval to practise should not be taxable.

The charging of GST on these fees is in line with our clarified policy intent but is susceptible to legal challenge under the current GST Act. Hence, for agencies that have been charging GST on such fees, we will validate these past GST collections, should they not have been made in accordance with the current GST Act, to ensure consistency between the legal position and the clarified policy intent, which is to subject these fees to GST. Clause 4 of the Bill provides for this.

For these two categories of fees, there is no change to the status quo. These fees are already charged with GST today and will continue to be charged with GST.

The third category are fees that are not charged with GST today, but should be charged with GST moving forward, based on our clarified policy intent. These include examination fees, which some agencies are currently not charging GST. Other examples include inspection fees prior to the licensing and conduct of certain business operations. We estimate that there are more than a hundred such examination and inspection-related fees.

For this third category of fees where GST has to be charged, the Government will help to minimise the impact on the public. We will absorb the GST on these fees in the first instance and impose a freeze on these fees until end-2025. Hence, all affected fees will not increase immediately as a result of the amendments.

MOF has separately asked the agencies involved to review their fees and charges and to consider ways where they can streamline processes or reduce costs. We will work closely with agencies on this, to review if the above-mentioned fees may be reduced or even removed. If there are unavoidable cost increases, then agencies would have to raise their fees. But they will do so only after end-2025 and will ensure that any increases are phased-in gradually, taking into consideration the impact on affected stakeholders.

Mr Speaker, we are proposing a clearer and more robust approach going forward, one that ensures that the correct GST treatment on Government fees by centralising the assessment and making clear the list of non-taxable fees via legislation. This will provide greater clarity and certainty to everyone on the GST treatment for Government fees. Sir, I beg to move.

Question proposed.

Mr Speaker, this Bill seeks to treat all taxable supplies made by public agencies as supplies which are made in the course or furtherance of a business. Notwithstanding this, the Minister for Finance has the power to disapply the provisions of the GST Act to certain prescribed taxable supplies made by public agencies.

Under clause 4 of the Bill, or the validation clause, every sum purportedly imposed as GST, before the date of publication of the new Act, on any supply made in connection with the performance of a regulatory function by a public agency, is deemed to be and always to have been, validly imposed. Accordingly, clause 4 goes on to say that no legal proceedings may be instituted on or after 7 March 2024 in respect of the imposition of any of these taxes. The provision is then accompanied by a Schedule, which sets out a list of supplies to which clause 4, the validation clause, does not apply. This list includes details of the 18 different types of supplies which relate to the sums of GST wrongfully collected by Government agencies as announced by MOF on 14 February. So, to recap, these were regulatory fees identified to have been charged with GST wrongly and which needed to be refunded. To summarise, while clause 4 validates past GST charges on regulatory fees, the specific supplies set out in the Schedule are not shielded by the validation clause.

My clarifications relate to this validation clause. Primarily, what is the purpose of the validation clause and why has it been included?

Following the Government's internal review last November, which identified inconsistencies in the application of GST on certain Government fees, why is there a need to deem that all previously collected GST in relation to regulatory fees has, in fact, been validly imposed? The new provision also states that no legal proceedings may be instituted outside of the transactions referred to in the Schedule.

As MOF has itself mentioned, over 5,000 different types of fees are charged by Government agencies and accordingly, is it possible that other erroneous transactions could have taken place in the past? And if so, what recourse will there be for persons affected? If this possibility exists, is it then appropriate to retrospectively validate these errors and limit the availability of legal remedies?

Generally speaking, where a GST-registered person wrongly collects an amount of GST with no reasonable excuse or through negligence, that person would have committed an offence and this is one which is punishable by a fine, or prison term or both. The Comptroller of GST has the power to consider the circumstances of each case. But the fact remains that GST-registered persons are held to a high bar when it comes to the wrongful collection of the tax. While these two kinds of situations are not exactly the same, the main principle that we can take away is that the wrongful or mistaken collection of GST is indeed a very serious matter.

As the Minister has explained previously, each Government agency, like any GST-registered business, has to assess whether its fees should be GST-chargeable whenever a fee is introduced or revised. Agencies did so based on the law, with guidance from MOF and IRAS, but the GST Act is also a complex piece of legislation. Mistakes in its interpretation can happen. This is understandable and it is laudable that the Government has not shied away from making tough decisions about being transparent whenever errors are made. As the Minister has said, the new proposed amendments aim to clarify GST treatment for regulatory and non-regulatory fees moving forward. To be clear, I do believe this a is a good development that will minimise errors in interpretation moving forward. That being said, I would be grateful if the Minister could share the intentions and thought process behind the inclusion of the validation clause at clause 4 of this Bill. Notwithstanding my clarifications, I support the Bill.

Minister Chee.

Mr Speaker, I would like to start by thanking Ms Usha Chandradas for her support for the Bill. She asked about the purpose of validation clause and whether there were other erroneous transactions in the past.

Sir, as I explained earlier in my Second Reading speech, we are validating the collection of fees where there is inconsistency in the interpretation of the law by agencies on whether GST should be charged. The charging of GST on these fees is consistent with our policy intent as clarified, but is susceptible to legal challenge under the current GST Act. We are, therefore, validating the past collections of GST on these fees to clarify the policy intent and legal position should they not have been made in accordance with the current GST Act. For the 18 fees where the collection of GST was not consistent with our policy intent, we are refunding the GST collected to affected stakeholders.

As Ms Usha has noted, the GST Act is indeed a complex piece of legislation. Interpretation and application by agencies on the ground can be challenging. This is why we have proposed the amendments in this Bill to ensure consistency in the policy intent, legal basis and agencies' practices relating to collections of GST on Government fees.

Any other clarifications for the Minister?

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 Chee Hong Tat].

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

Order. I propose to take a break now. I suspend the Sitting and I will take the Chair at 2.05 pm.

Sitting accordingly suspended

at 1.49 pm until 2.05 pm.

Sitting resumed at 2.05 pm.

[Mr Speaker in the Chair]