Second Reading Speech by Senior Minister of State for Finance Indranee Rajah on The Income Tax (Amendment) Bill 2017, at the Parliament, 2 Oct 201702 Oct 2017
Mr Speaker, I beg to move, "That the Bill be now read a second time."
2. 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.
3. A public consultation exercise on the draft bill was held from 12 May to 4 June this year. MOF has evaluated the feedback received and where relevant, incorporated them in the final Bill.
4. 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.
5. 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. Business 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 IRAS.
6. 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 needs only 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 the nett is $1. 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).
7. 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.
8. 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 (i.e. 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.
9. 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.
10. 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. Clause 5 and 7 of the Bill provides for the changes.
11. 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.
12. 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.
13. Mr Speaker, I beg to move.