Second Reading Speech by Deputy Prime Minister, and Minister for Finance on The Goods and Services Tax (Amendment) Bill, at The Parliament, 7 November 202207 Nov 2022
1. Mr Speaker, Sir, I beg to move, "That the Bill be now read a second time".
2. The Goods and Services Tax (Amendment) Bill 2022 covers six amendments. Two give effect to measures that were announced in my Budget Statement this year. The other four arise from our periodic review of the GST regime to clarify tax rules and to improve administration.
3. The Ministry of Finance has sought views from the public on the draft Bill in June. We published our responses to the key feedback received on 10 October 2022. We thank the contributors for their inputs and have incorporated their suggestions where relevant.
A – Increasing the GST rate from 7% to 8% from 1 January 2023, and from 8% to 9% from 1 January 2024
4. Let me start with the changes announced in my Budget Statement this year, which is the increase in the GST rate from 7% to 8% from 1 January 2023, and from 8% to 9% from 1 January 2024.
5. And clause 4 of the amendments will give effect to this change. The proposed change in our GST rate has been robustly debated in this House, but let me reiterate a few points.
6. Sir, this Government looks after our people, our families, and our seniors. We have been expanding support for their needs, including their healthcare, social, and ageing needs, and we will continue to do more. We also want to improve social mobility, invest in skills upgrading, and green our economy and city. To achieve all this, we will need more government spending – on a structural and recurring basis.
7. And this is why at this year’s Budget, I have raised a slate of taxes, including Personal Income Tax, Property Tax, GST, and the ARF rates for vehicles. So this is how, as a responsible Government, we plan ahead, and we meet our future needs in a sustainable way.
8. This GST rate increase is an important revenue move that will provide us with additional resources to meet our growing healthcare expenditures and to take better care of our growing number of seniors.
9. The Government will help all Singaporeans adjust to the GST increase, especially the less well-off.
10. We will help every Singaporean family through the Assurance Package. We have already planned for this at the same time as we planned for the GST rate increase. As members will know that at Budget 2020, DPM Heng and then-Finance Minister set aside $6 billion for the Assurance Package. At this year’s Budget, I enhanced the package by $640 million.
11. With the Assurance Package, we had committed that the majority of Singaporean households will not feel the impact of the GST increase for at least five years, and that lower-income households will not feel the impact for about ten years. Put another way, they will effectively not face additional GST expenses for many years. So we will continue to uphold these commitments even as the inflationary outlook evolves.
12. Let me illustrate what I mean. In my Budget Statement, I gave an example of a middle-income family of four with two school-going children, living in a 4-room flat and earning a monthly household income of about $8,000. At that time, we estimated that they will incur GST on household expenses of around $3,400 a month, or $40,000 a year. With a 2%-point increase in GST, this means their additional GST expenses will amount to around $800 per year, and under the Assurance Package, the family would have received around $4,000 in benefits. So $4,000 in benefits, compared to $800 in additional expenses per year, that is about 5 times – which means that the Government pays about 5 years’ worth of the family’s additional GST. That was the computation we made earlier this year in the Budget.
13. With higher inflation this year and in the coming years, we can expect that their household expenditure and therefore their additional GST expenses will increase. The size of the Assurance Package would therefore need to be correspondingly increased to meet our committed levels of offsets.
14. Therefore, after reviewing the elevated inflation situation, I have decided to top up the Assurance Package by another $1.4 billion to reach around $8 billion. This ensures that the package continues to offset additional GST expenses for the majority of Singaporean households for at least five years, with around ten years offset for lower-income households – and I will share the details of this enhancement in my Budget Statement next year.
15. So for those who ask the Government to delay the GST rate increase, the Assurance Package in effect does precisely that, for the majority of households. The cash and other forms of support under the Assurance Package amount to more than what most citizens will pay in additional GST for at least 5 years.
16. I have explained how the Assurance Package works and how it is for all Singaporean households, and provides a cushion to ease the transition.
17. Let me now turn to another important design feature of the GST system in Singapore – which is our permanent GST Voucher (GSTV) scheme and the Government absorbing GST for subsidised education and healthcare services. Because people say the Assurance Package, no matter how generous, is temporary. Yes, but they do not fully understand that there is also another important design feature of GST, which is a permanent GST Voucher scheme and the absorption of GST for subsidised education and healthcare. Households already receive these offsets today and as permanent measures, they will continue alongside, and even after, the Assurance Package.
18. Through the GSTV, we help lower- to middle-income households defray a significant part of their GST expenses permanently. The GSTV has 4 components: cash; MediSave for seniors to support their medical needs; U-Save rebates to offset utilities bills; and S&CC rebates to offset S&CC bills.
19. And besides the GSTV, we will continue to absorb GST for publicly subsidised healthcare and education.
20. So after putting together the permanent GSTV and the GST absorption – what we have is an overall GST system that taxes consumption in a fair and effective manner. What are some of the features of our system?
a. In effect, we have a multi-tiered GST system – one that is tiered by income levels, with lower-income households paying a much lower effective GST rate than higher-income households.
b. As I had explained in the Budget this year, on average, the bottom 10% of households do not pay any GST at all after the permanent offsets. This includes many retiree households without income.
c. And even after the GST increase, the effective GST rate for households in the first three income deciles remains unchanged at below 3%. This means that the GST increase will not negatively impact them.
d. The full impact of the GST will be borne largely by higher-income households, as well as tourists, and foreigners who are based here – and this is also the group that contributes the biggest share to net GST revenues from households and individuals.
21. Sir, we have designed our GST system carefully to achieve these outcomes. And as the inflationary outlook evolves, we will continue to monitor our scheme parameters to ensure that we uphold and maintain these objectives.
22. The GST is therefore a key part of our fair and progressive system of taxes and transfers – that takes care of the less well-off, and ensures that those who are better off contribute their fair share in revenues.
B – Update the GST treatment for a supply of travel arranging services
23. The second amendment updates the GST treatment for a supply of travel arranging services. Examples of such services include the arranging and facilitation of international transport, accommodation, and travel insurance.
24. Currently, the basis for determining whether a supply of travel arranging services is zero-rated or standard-rated depends on factors like the location of the accommodation, or whether the transportation being arranged is international in nature. For example, for the arranging of accommodation, if the accommodation is located in Singapore, today, GST applies. But if the accommodation is located abroad, then the supply of arranging the accommodation today is zero-rated, which means it is not subject to GST.
25. But today’s treatment does not accurately reflect the place of consumption of such travel arranging services. Such arranging or facilitation services are in fact consumed by the Singapore-based consumer at the point of booking, rather than at the eventual place of consumption of the underlying travel product.
26. We are therefore updating the GST treatment of travel arranging services under clause 7, and with effect from 1 January 2023, the GST treatment for a supply of travel arranging services will be based on where the person who contracts for the service and where the person who directly benefits from the service belong. For example, if the contractual customer of the service belongs in Singapore, then GST will be charged at the standard rate.
27. This amendment will also ensure consistent GST treatment for travel arranging services, regardless of whether they are rendered by local or overseas providers. Today, overseas providers of travel arranging services already have to charge GST when providing services to Singapore-based customers, irrespective of where the underlying travel product such as accommodation is.
28. Let me now touch on the remaining four amendments in the Bill, which arise from our regular reviews to clarify tax rules and improve administration.
C – Update the transitional rules for change in GST treatment
29. Clauses 8, 12, 13, 14, and 15 update the Transitional Rules in the GST Act. These Rules are to be applied during a change in GST rate or treatment. Based on the Rules, taxpayers will determine whether the old or new GST rate or treatment applies to their supplies. The amendments provide greater clarity in the application of the rules, particularly for more unique supplies made, such as supplies which spans both a change in GST rate and the effective date of GST registration of a business.
D – Refining the rules for taxing low-value goods and imported services under the Overseas Vendor Registration and Reverse Charge regimes
30. Next, clauses 2, 3, 5, 16, 17, 19, and 20 refine the rules for taxing low-value goods and imported services under the Overseas Vendor Registration, or OVR, and Reverse Charge, or RC regimes. The refinements seek to prevent double taxation, provide tax certainty, and ease the compliance burden of businesses. For example, to prevent double taxation, the refinements clarify that where overseas vendors procure services already charged with GST from Singapore suppliers, and subsequently onward supply these same services to their own customers in Singapore, they need not charge GST on these onward supplies. This is provided the overseas vendors are on the “pay-only” regime where they do not make any claims for refund of GST they incur on their purchases.
E – Providing criminal sanctions to counter Missing Trader Fraud schemes
31. The next amendment relates to our efforts to counter Missing Trader Fraud. Missing Trader Fraud is a fraud scheme used by syndicates, where the seller absconds with the GST he has collected on his sales without paying the GST to IRAS, while businesses further down the fraud chain continue to claim refunds from IRAS on input GST paid on their purchases.
32. In 2020, we introduced several measures to deter Missing Trader Fraud schemes. This included denying input GST refund claims to businesses who knew or should have known that their purchases were part of a fraudulent arrangement, as well as introducing a 10% surcharge to be applied on the amount of input GST denied. These measures targeted businesses that did not conduct the appropriate due diligence when entering into business arrangements.
33. To directly target the perpetrators of Missing Trader Fraud, criminal sanctions based on a two-tiered approach are now proposed to be introduced from 1 January 2023.
a. Tier 1 offences apply to Missing Trader Fraud masterminds, co-conspirators, and syndicate members who participate in such fraud schemes. And tier 1 offences carry a maximum imprisonment term of 10 years, and/or maximum fine of $500,000. This is a step up from the maximum imprisonment term of 7 years for the offence of fraudulent trading, which such offenders are currently prosecuted under, and is intended to convey a strong deterrence message.
b. Tier 2 offences apply to current or former sole-proprietors, partners or directors of business entities that are used in Missing Trader Fraud schemes. These persons typically incorporate entities which are then used by syndicates for fraudulent purposes. Tier 2 offences carry a maximum imprisonment term of 1 year, and/or maximum fine of $50,000.
34. The proposed sanctions are proportionate to the severity of the offences, and are aligned with the sanctions for similar offences under other Acts, like the Penal Code and the Companies Act.
35. And clauses 6, 10, 11, and 18 of the Bill provide for this amendment.
F – Provide powers for the Comptroller of GST to extend GST filing deadlines
36. The last amendment, provided by clause 9, empowers the Comptroller of GST to extend the filing deadline for GST returns.
37. This allows the Comptroller the flexibility and authority to administer the GST regime efficiently, by extending the deadline for filing GST returns where necessary, such as during the COVID-19 pandemic.
38. A similar amendment was earlier passed under the Income Tax (Amendment) Bill 2022, to empower the Comptroller to extend all filing deadlines in the Income Tax Act as well as the Property Tax Act.
39. Mr Speaker, the amendments proposed in the GST (Amendment) Bill 2022 are needed to make our revenue structure stronger and more resilient. These changes will put us in a better position to fund our common aspirations and to build a fairer and more inclusive Singapore.
40. Mr Speaker, Sir, I beg to move.