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Second Reading Speech by Lawrence Wong, Second Minister for Finance and Minister for Education, on Goods and Services Tax (Amendment) Bill 2020

03 Nov 2020
Mr Speaker, I beg to move, "That the Bill be now read a second time."

2. The Goods and Services Tax (Amendment) Bill 2020 covers seven sets of amendments. Two relate to the introduction of measures to enhance the Comptroller of GST’s powers to safeguard public monies and investigate tax offences. The other five arise from our periodic review of the GST regime to clarify technical rules and improve on administration. 

3. The Ministry of Finance sought views from the public on the draft Bill earlier this year. We have evaluated the feedback received and incorporated them where they are relevant to the Bill. We thank the contributors for their inputs.

4. Let me start with the first two sets of amendments, which relate to the implementation of measures to safeguard public monies and investigate tax offences. 

5. First, we introduce three measures to counter Missing Trader Fraud. 

6. In other jurisdictions and in Singapore too, there have been multiple attempts to use Missing Trader Fraud to defraud the tax authorities. For example, in the European Union, Missing Trader Fraud has cost around EUR 60 billion annually . Disrupting the capacity of organised crime groups involved in Missing Trader Fraud is one of the European Union’s priority crime areas . 

7. How does Missing Trader Fraud work? 

a. Basically, all GST-registered businesses are required to charge GST when they sell goods or services. This is known as output GST. These businesses are supposed to pay the output GST to IRAS.

b. GST-registered businesses who incur GST on their purchases of goods and services may claim a refund of this GST from IRAS. This is known as input GST claim.  

8. Missing Trader Fraud is a fraud scheme used by syndicates, where a party who has collected output GST and is supposed to pay it to IRAS absconds. This party is therefore known as the Missing Trader. 

a. Meanwhile, parties downstream of the chain continue to make input GST claims to IRAS, on purchases that they had made. 

b. Syndicates make the detection of Missing Trader Fraud difficult, by interposing many businesses along the chain to deter IRAS from tracing back to the Missing Trader. 

9. Currently, businesses which IRAS have found to be involved in Missing Trader Fraud will have their input GST claims denied, as they have not fulfilled the conditions for claiming input GST. The purchases that such businesses made and are seeking input GST claims on were not genuine business transactions. 

10. Beyond this, it is also important that we stop Missing Trader Fraud from being attempted across the value chain in the first instance. It is critical that all GST-registered businesses undertake adequate and appropriate due diligence checks, as well as precautions, to avoid being in a fraudulent arrangement. Doing so is also in the interest of all businesses, as part of good corporate governance. Bona fide businesses generally already conduct due diligence checks on their transactions.

11. The first set of amendments will allow us to put in place three measures to deter Missing Trader Fraud.

12. The first measure allows the Comptroller of GST to deny a GST-registered business’ input GST claim, if the business knew or should have known that his purchase was part of a fraudulent arrangement. 

a. The burden of proving that the business knew or should have known of the fraudulent arrangement lies on the Comptroller, with the standard of proof being the balance of probabilities. 

b. And I should note that this measure is similar to the approach taken in the United Kingdom and the European Union to safeguard tax revenue. 

13. The second measure introduces a surcharge of 10% to be applied on the amount of input GST denied for a GST-registered business which should have known that its purchase was part of a fraudulent arrangement. Again, this surcharge serves a deterrent effect and we will review the surcharge quantum periodically. Other jurisdictions do likewise with a surcharge to serve as a deterrence.

14. The third measure allows the Comptroller to impose conditions on a business which is required to register for GST. It also allows the Comptroller to deny a GST registration, or cancel GST registration if any of the conditions imposed is breached. 

15. The three measures under the first amendment can be found in clauses 4, 6, 7, 10 to 13, 20 and 22 of the Bill. 

16. The second amendment enhances IRAS’s powers to seize goods for investigation of tax offences. 

a. This amendment empowers specially authorised IRAS officers to seize or prohibit the disposal of or dealing in, any goods suspected or intended to be used to commit an offence under the GST Act. The seizure powers also include goods which may aid in the investigation or prosecution of such an offence. This prevents syndicates from using the goods to perpetuate fraud, and it is an important measure in disrupting the operations of fraud schemes. 

b. Clauses 2, 5, 13, 14 to 17 and 25 in the Bill provide for this change.

17. Beyond these two sets of amendments, MOF regularly reviews the GST regime to clarify technical rules and to improve GST administration. Let me now touch on the remaining five amendments in the Bill arising from this periodic review. 

18. The first two amendments arising from this periodic review relate to enhancing our GST rules to counteract tax avoidance arrangements. 

19. Under the first amendment, we will remove the discretion for the Comptroller of GST to disregard or vary arrangements that are carried out with tax avoidance as one of their main purposes, and not for bona fide commercial reasons. This seeks to maintain a certain level of consistency across the Comptroller’s treatment of GST tax avoidance arrangements. 

a. The amendment also expands the tax avoidance rules to include GST avoidance arrangements that result in an earlier entitlement to input tax claims or unjustified bad debt relief claims. 

b. Under the amendment, tax adjustments by the Comptroller to counteract tax avoidance arrangements must be made within 5 years from the end of the relevant GST accounting period. The taxpayer will also be required to pay the additional GST arising from the Comptroller’s tax adjustments within one month. 

c. These changes to our GST rules to counteract tax avoidance arrangements are found in clauses 8 and 12 of the Bill.

20. The second amendment further deters tax avoidance arrangements, by introducing a surcharge equal to 50% of the amount of additional GST payable as a result of the adjustments made by the Comptroller to counteract tax avoidance arrangements. This is similar to what we discussed and passed earlier in the Income Tax (Amendment) Bill.

a. Currently, there is no such surcharge – instead, the Comptroller’s adjustments under the anti-avoidance rules only restore taxpayers to their initial tax position, as if the arrangement had not been entered into. This is insufficient to deter aggressive taxpayers from taking the risk of later adjustments made by the Comptroller to counteract the tax avoidance arrangement.

b. Clauses 9 and 12 in the Bill provides for these changes. 

21. The third amendment arising from the periodic review of GST system seeks to provide certainty to taxpayers, by clarifying the treatment of claims relating to overpaid or erroneously paid GST. 

a. For instance, the GST Act currently allows a person to claim a refund of money that has been overpaid or erroneously paid as GST, such as GST that was wrongly charged on non-taxable transactions. 

b. The amendments clarify that claims relating to overpaid or erroneously paid GST must be made to IRAS within 5 years from the end of the relevant GST accounting period or the date on which the GST was paid; and that such claims are also applicable to overpaid or erroneously paid GST on imported goods. 

c. These changes are found in clause 19 in the Bill.

22. The fourth set of amendments seek to encourage more taxpayers to benefit from the convenience of digital services, and allow them to get refunds faster. The Minister for Finance will be allowed to prescribe in subsidiary legislation that refunds of GST are to be made by the Comptroller of GST to GST-registered businesses via electronic means. 

a. And just as I mentioned for the Income Tax (Amendment) Bill, an assessment of the readiness of GST-registered businesses will be made next year, and exceptions will be provided where needed. 

b. Clause 18 of the Bill provides for this amendment. 

23. Finally, the fifth amendment arising from the periodic review of our GST system seeks to enable IRAS to effectively carry out its official duties in administering public schemes, such as the Jobs Support Scheme. The amendment allows the Comptroller of GST to disclose information to the CEO of IRAS, or officers authorised by the CEO of IRAS for that purpose, and allow these officers to access any records or documents where necessary for the purpose of these duties. This amendment is found in clauses 3, 21 and 24 in the Bill. A similar amendment was proposed for the Income Tax (Amendment) Bill 2020 just now.

24. Mr Speaker, I beg to move.