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Second Reading Speech by Second Minister for Finance, Mr Chee Hong Tat, on the Goods and Services Tax (Amendment) Bill, in Parliament, 2 April 2024

02 Apr 2024

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

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

3.     As Members are aware, MOF announced on 14 February 2024, that GST charged on 18 Government fees across 6 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.

4.     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 practices.

5.     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.

6.     This is why, in response to several members’ earlier PQs 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.

7.     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.

8.     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.

9.     As part of this change in legislative approach, moving forward, MOF and IRAS will henceforth work closely with agencies to assess their fees instead of allowing self-assessment by agencies.

10.     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.

11.     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.

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

13.     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.

14.     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:

a.     Agencies may charge fees for examinations that an individual must undertake prior to being licensed as a practising professional in a regulated industry.

b.     Some agencies have assessed such examination fees as taxable, whereas others have not, arising from differing interpretations of the GST Act.

c.     Based on our policy intent, as I have clarified above, such exam fees should attract GST. Only the eventual licence fee that confers applicants with the regulatory approval to practise should not be taxable.

15.     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.

16.     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.

17.     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.

18.     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.

19.     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.

20.     Mr Speaker, we are proposing a clearer and more robust approach going forward; one that ensures 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.

21.     Sir, I beg to move.