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Second Reading Speech by Second Minister for Finance Lawrence Wong, on the Goods and Services Tax (Amendment) Bill 2018, at The Parliament, 19 November 2018

19 Nov 2018

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

2. The Goods and Services Tax (Amendment) Bill 2018 covers six tax changes. These include a measure announced in the 2018 Budget, as well as five changes arising from periodic reviews of the GST regime to ease business compliance, clarify existing legislation and improve tax administration.

3. We sought views from the public on the draft Bill earlier this year. MOF has evaluated all the feedback received and incorporated them where relevant to the draft text of the Bill.

Introduce GST on imported services from 1 January 2020

4. Let me start by highlighting the key amendment that we are making in this Bill which is the introduction of GST on imported services, which was announced in Budget this year. This measure will ensure that our GST regime remains fair and resilient in a digital economy, and will take effect from 1 January 2020. 

5. Currently, GST is applicable on services only in instances where the service is supplied in Singapore, essentially when the supplier has an establishment in Singapore. With the digital economy, it has become increasingly common for services to be supplied by overseas suppliers, without the need for the suppliers to establish a presence within Singapore. We welcome this development, as this allows businesses and consumers to have access to services from overseas suppliers readily. 

6. But at the same time, we must ensure that our tax rules are updated, such that both imported and local services are treated on a level playing field and accorded the same GST treatment. This means that GST ought to apply on the local consumption of services, irrespective of whether the service is supplied in Singapore or from abroad. 

7. GST on imported services will be introduced through a Reverse Charge mechanism for business-to-business (“B2B”) imported services, and an Overseas Vendor Registration regime for business-to-consumer (“B2C”) imported services. To ensure smooth implementation of the measures, MOF and IRAS had consulted extensively with businesses as well as industry associations. I will explain in greater detail how these measures work.

8. Normally, GST-registered businesses will charge and collect GST on their supplies of services to customers, and then pay the GST collected to the Inland Revenue Authority of Singapore (“IRAS”). But, GST is not charged by overseas suppliers as they are not registered for GST in Singapore. So we have proposed a Reverse Charge mechanism when local business customers that are GST-registered and purchase services from overseas suppliers will instead be responsible for accounting and paying the GST to IRAS. That is why it is called Reverse Charge because instead of having the supplier account for and pay the GST as it is traditionally done, we are now asking the customer to do so. Examples of B2B imported services include management, IT and payroll services charged by overseas service providers to local business customers. 

9. I should clarify that the vast majority of local businesses purchasing services from overseas suppliers will not be affected by Reverse Charge. This is because we will not apply Reverse Charge on businesses which can claim full refund of the GST they incur on their purchases, including imported services. Such businesses need not pay the GST on imported services only to then claim a full GST refund later. Essentially, they are paying and claiming in full so really there is no need to do so, and that’s why we are not applying Reverse Charge on such businesses and this will avoid unnecessary compliance burden for these businesses. Instead, businesses affected by Reverse Charge are primarily those that are not entitled to full GST refund in the first place.  For instance, when they make GST-exempt supplies. These affected businesses are mainly financial institutions and residential property developers. 

10. On the B2C front, overseas suppliers and electronic marketplace operators will be required to register for GST under our Overseas Vendor Registration (OVR) regime. They will have to register if they have a global annual turnover of $1mil or more, and make sales of digital services of at least $100,000 to local consumers, so it is a two-tier criteria. These GST-registered overseas vendors will then charge and collect GST on their sale of digital services to consumers in Singapore, and pay the GST they collect to IRAS. Examples of such B2C imported digital services are video and music streaming services, mobile applications and software.

11. Reverse Charge and Overseas Vendor Registration are not new, and have already been adopted in several jurisdictions with Value-Added Tax (VAT) or GST regimes, such as Australia, New Zealand, Japan and Korea. These measures are also consistent with international guidelines for consumption taxes to address the tax challenges of the global economy. 

12. For B2C services provided to consumers, the scope is targeted and, as mentioned earlier, covers only digital services like video and music streaming services, mobile applications and software. Such digital services form a small share of current consumption expenditure. 

13. Clauses 5-20, 22-29 and 35-41 of the Bill provide for the tax change that I just described, on introducing GST on imported services, with effect from 1 January 2020.

14. As mentioned earlier, the Ministry of Finance also regularly reviews and refines the GST regime, and the Bill provides for other changes to existing tax policies and administration. Let me highlight the key changes. 

Enhance IRAS’ powers to investigate tax crimes

15. First, similar to the amendments introduced in the Income Tax (Amendment) Bill 2018, which were passed in Parliament last month, we will enhance IRAS’ powers to investigate tax crimes for GST.  

16. Tax offenders and criminal syndicates are employing more sophisticated schemes to defraud the authorities, as I mentioned in my last speech when we passed the Income Tax Amendment Bill. As so, enhanced investigative powers are required to more effectively deal with serious tax offenders, as well as acts of obstruction which may hamper IRAS' investigations and prosecution. 

17. The proposed amendments will enhance IRAS' investigative powers, by providing authorised IRAS officers with (i) the power of forced entry; (ii) the power to arrest without warrant; and (iii) the power to carry out body search; subject to conditions. I should highlight that investigation officers of other tax authorities such as the UK and US have similar powers to facilitate their investigations. 

18. Similar to the Income Tax (Amendment) Bill 2018, we will put in place safeguards in the way these enhanced legislative powers are exercised. All these enhanced investigative powers may only be exercised by officers authorised by the Comptroller of Goods and Services Tax. These authorised officers will receive training consistent with those in other law enforcement agencies, like the Singapore Customs and the Singapore Police Force. 

19. The amendments will also expand IRAS' power to gather from any person all information relevant to its investigations or the prosecution of offences under the GST Act. Currently, for GST purposes, IRAS may gather information relating to a person’s business transactions only. The amendment will allow IRAS to gather all information as long as it is relevant to the investigation or prosecution. For example, this could include information relating to a person’s income or assets, or information relating to accomplices.

20. Clauses 3, 33 and 34 of the Bill provide for all of the changes to enhance IRAS’ powers to investigate tax crimes, which I have just described. 

Sharing of information by IRAS with law enforcement agencies to combat serious crimes

21. The second broad change pertains to the proposed amendment of the GST Act to allow IRAS to share with law enforcement agencies (LEAs) information that may be relevant to the investigation or prosecution of serious crimes. Such crimes are prescribed in the First and Second Schedules to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act. Likewise, this proposal was introduced in the Income Tax (Amendment) Bill 2018. And again, other countries, including Australia, Norway, Sweden and the UK, also allow for the disclosure of tax information to LEAs to combat non-tax crimes.

22. The information shared is to be disclosed by the Comptroller to the head of an LEA for the purpose of the investigation or prosecution of serious crimes. Unauthorised onward disclosure of such information constitutes an offence. Clause 4 of the Bill provides for the changes.

Countering unauthorised GST collection

23. Lastly, we propose to amend the GST Act to strengthen prosecution and deterrence of unauthorised collection of GST. Currently, an offence is committed if a non-GST registered person issues an invoice or receipt with an amount purporting to be GST. Such an offence is currently punishable by a penalty and a fine.

24. To further protect consumers and strengthen deterrence against unauthorised collection of GST, the proposed amendment makes unauthorised collection of GST an offence, without reference to the issue of an invoice or a receipt for such collection.  This in turn allows the use of alternative evidence, such as sales contracts or service agreements, in proving unauthorised GST collection. 

25. The amendment also introduces a heavier punishment, by way of a custodial sentence, in cases where the offence is committed without reasonable excuse or through negligence. The custodial sentence of not exceeding 3 years is aligned with existing penalties under the GST Act, which are similarly committed through negligence or without reasonable excuse. 

26. In addition, our proposed amendment will counter unauthorised GST collection by introducing a new offence where a GST-registered person, or a person authorised to collect GST, collects more GST than what is allowed under the GST Act, without reasonable excuse or through negligence. This ensures that GST-registered businesses exercise due responsibility when charging and collecting GST on their supplies made, and also deters the abuse of a company’s GST-registration status. Clauses 30-32 of the Bill provides for this change. 

27. Mr Speaker, I beg to move.