Second Reading Speech by Mr Lawrence Wong, Second Minister for Finance, on the Customs (Amendment) Bill 2018, at The Parliament, 9 July 2018
09 Jul 2018Mr Speaker, I beg to move, "That the Bill be now read a second time."
2. The purpose of the Customs Act is to enable Singapore Customs, or Customs in short, to effectively carry out its mandate of trade facilitation and revenue enforcement. The Ministry of Finance and Customs regularly review the Customs Act to ensure that the Act remains up to date and in line with policy intent.
3. The Customs Act was last amended in 2012.
4. Since then, we have carried out another review of the Customs Act. The Customs (Amendment) Bill 2018, or the Bill in short, aims to support policy changes on fuel taxes, improve Customs’ operational efficiency, and provide legal clarity on current policies.
5. A public consultation exercise on the draft Bill was held from 9 May to 5 June last year. MOF and Customs have published a summary of comments received and our responses.
6. Mr Speaker, let me now take members through the key amendments in the Bill.
Support policy changes on fuel taxes
7. The first set of amendments seeks to support policy changes on fuel taxes. Diesel taxes were restructured in Budget 2017, with the introduction of a volume-based duty on automotive diesel, industrial diesel, and the diesel component in biodiesel. At the same time, the existing lump sum special tax on diesel vehicles was reduced. The shift from a lump sum tax to a usage-based tax was to incentivise users to reduce diesel consumption.
8. We have three amendments in the Bill to support these tax changes.
9. First, we will broaden the definition of ‘motor fuel’ in the Customs Act to include diesel and any fuel that may be used to power a means of transport.
10. The Customs Act empowers Customs to enforce revenue collection and customs laws relating to motor fuels that attract duties. For instance, by law, Singapore-registered vehicles are required to have a minimum amount of motor fuel (three quarters of the tank) when leaving Singapore at land checkpoints. This is to prevent drivers from evading payment of Singapore’s fuel duties.
11. However, the current definition of ‘motor fuel’, which these laws rely on, only includes petrol and compressed natural gas, but not diesel. With the introduction of volume-based duty on diesel, there is a need to include diesel in the definition, so that Customs can enforce the relevant rules.
12. So we have broadened the definition of ‘motor fuel’ to include any fuel, including diesel, that can power a means of transport. Clause 3 provides for these changes.
13. Second, we will amend the Act to clarify the processes by which Customs will deal with changes to the rate of special taxes for motor vehicles.
14. Currently, special tax is levied on diesel vehicles and paid together with the tax for the vehicle licence for either a 6-month or 12-month period. The Customs Act does not state what happens when the special tax rate is changed in the middle of a period that has already been paid for, or the current period for short. For instance, the special tax was reduced at Budget 2017 (on 20 February 2017) which would have been during the current period for some vehicle owners.
15. So we need to amend the Act to provide greater clarity going forward on how the amount of special tax payable should be calculated when there are different special tax rates within the current period. In particular, the amendment will allow the Minister for Finance to prescribe the effective date of the new rate, and the treatment for overpayment or underpayment of special tax. For example, the Minister can prescribe that any overpayment can be offset against any other tax, levy or fee payable under the Road Traffic Act in respect of the motor vehicle. Clauses 7 to 9 provide for these changes.
16. Third, we will give authorised Customs officers the discretion to let vehicles which have flouted the three-quarter tank rule, but cannot U-turn at the checkpoint, to leave Singapore after imposing the fine.
17. I spoke earlier about the minimum motor fuel requirement for motorists departing Singapore. Currently, motorists caught flouting this rule at the land checkpoints will be fined, and must U-turn to top up their fuel tank before they can leave Singapore.
18. With the expanded definition of ‘motor fuel’ mentioned earlier, the rule will now apply to diesel-powered vehicles. But it may not always be possible for larger diesel-powered vehicles, like coaches and trucks, to U-turn if they are caught, due to infrastructure constraints.
19. For practical reasons, such motorists have to be allowed to leave Singapore while still being held liable for trying to leave Singapore without the required minimum amount of fuel. Clause 15 gives Customs officers the discretion to allow this.
20. Customs will explore imposing a comparatively higher penalty for such vehicles, to maintain parity with vehicles made to U-turn.
Improve Singapore Customs’ operational efficiency
21. Next I move to the second set of amendments which improve Customs’ efficiency in carrying out its daily operations, and there are three key changes.
22. First, we will extend the time limit for the recovery of short-levied and erroneously refunded duties, taxes, or other charges from one to five years, and remove the time limit for the recovery of duties due to fraud and wilful default.
23. Short-levied and erroneously refunded duties can arise due to incorrect calculations or deliberate attempts to defraud Customs on the duties and GST payable. Some cases of underpaid duties and GST may only be uncovered more than one year after the event of underpayment.
24. This change will give Customs greater operational flexibility to seek recovery of short-levied and erroneously refunded duties and GST. The revised time limit will be aligned with the requirement for companies to keep records for five years under the Income Tax Act and GST Act. Clause 11 provides for the changes.
25. Second, we will extend the time limit for submission of claims for refund of duties, taxes, or other charges overpaid or erroneously collected from one to five years.
26. Currently, Customs is unable to accept claims for refunds made more than one year after overpayment or erroneous collection. Such situations can arise when traders, after tallying their accounts at the end of their financial year or through audits, realise that they have overpaid duties and GST on their import permit applications made more than a year ago.
27. This amendment will give more time for traders to discover any errors in payment to Customs. This will also align the time allowance in the Customs Act with that of the GST Act. Clause 10 provides for this change.
28. Third, we will allow the Director-General of Customs (or DG-Customs) to delegate powers granted to him by the Act, without needing to seek the approval of the Minister for Finance.
29. Currently, approval from the Minister for Finance is required for DG-Customs to delegate any of his powers to senior officers of Customs. Some powers such as waiver of payment and granting of licences may need to be delegated from time to time to ensure efficiency of Customs’ daily operations. These powers tend to be operational in nature. This amendment will streamline the administrative processes for such delegation.
30. This particular amendment also aligns the administration of the Customs Act with that of the GST Act and Regulation of Imports and Exports Act (RIEA). These latter two Acts empower the Comptroller and DG-Customs to delegate powers without needing to seek the approval of the Minister for Finance or the Minister for Trade and Industry respectively. Clause 4 provides for the changes.
Provide legal clarity on current policies
31. Next, I turn to the amendments to provide legal clarity to current policies. I would like to highlight two key changes pertaining to collection and re-imposition of duties.
32. First, we will provide clarity that there will be collection of customs or excise duties and import GST on goods used or consumed in a Free Trade Zone (FTZ).
33. Duties and import GST are imposed on goods imported into Singapore for use and consumption. On the other hand, transhipment goods stored in the FTZs, or Free Trade Zones, which are designated areas at the ports and airport that facilitate entrepot trade, enjoy temporary suspension of customs or excise duties and import GST, as they are not meant for usage and consumption here.
34. However, if these goods are used or consumed within FTZs, then the suspension ceases to apply.
35. Currently, the Act is worded generally to impose liability for duties and GST for any goods in FTZs that cannot be accounted for. This change will provide legal clarity that goods used or consumed within FTZs are liable for duties and GST, in line with existing policy intent. Clause 14 provides for the change.
36. Second, Customs will be given the flexibility to re-impose duties on goods which cease to be duty-exempt, based on the value at the time of importation or at the time the exemptions cease.
37. Certain goods may enjoy duty exemption upon import, and then be liable for duties later on when the conditions of the exemption no longer hold. One example is that embassies are entitled to duty exemption when they import motor vehicles for official use. But if the motor vehicle is subsequently sold to a person that is not eligible for the exemption, the duty exemption will cease to apply, and duties will need to be levied and paid on the motor vehicle.
38. Customs currently re-imposes duties on a good based on its value either at importation, or when the exemption expires, depending on the circumstances. This is determined by Customs based on factors such as the nature of the good and conditions of the exemption.
39. This amendment will provide clarity in the Act that Customs has the flexibility to re-impose duties based on the value either at importation, or when the exemption ceases. Clause 6 provides for the change.
Conclusion
40. In summary, Mr Speaker, the Bill will help Customs to implement the recent tax changes on diesel, and enable Customs to carry out its day-to-day operations more efficiently. The Bill will also provide legal clarity to current policies.
41. Mr Speaker, I beg to move.
2. The purpose of the Customs Act is to enable Singapore Customs, or Customs in short, to effectively carry out its mandate of trade facilitation and revenue enforcement. The Ministry of Finance and Customs regularly review the Customs Act to ensure that the Act remains up to date and in line with policy intent.
3. The Customs Act was last amended in 2012.
4. Since then, we have carried out another review of the Customs Act. The Customs (Amendment) Bill 2018, or the Bill in short, aims to support policy changes on fuel taxes, improve Customs’ operational efficiency, and provide legal clarity on current policies.
5. A public consultation exercise on the draft Bill was held from 9 May to 5 June last year. MOF and Customs have published a summary of comments received and our responses.
6. Mr Speaker, let me now take members through the key amendments in the Bill.
Support policy changes on fuel taxes
7. The first set of amendments seeks to support policy changes on fuel taxes. Diesel taxes were restructured in Budget 2017, with the introduction of a volume-based duty on automotive diesel, industrial diesel, and the diesel component in biodiesel. At the same time, the existing lump sum special tax on diesel vehicles was reduced. The shift from a lump sum tax to a usage-based tax was to incentivise users to reduce diesel consumption.
8. We have three amendments in the Bill to support these tax changes.
9. First, we will broaden the definition of ‘motor fuel’ in the Customs Act to include diesel and any fuel that may be used to power a means of transport.
10. The Customs Act empowers Customs to enforce revenue collection and customs laws relating to motor fuels that attract duties. For instance, by law, Singapore-registered vehicles are required to have a minimum amount of motor fuel (three quarters of the tank) when leaving Singapore at land checkpoints. This is to prevent drivers from evading payment of Singapore’s fuel duties.
11. However, the current definition of ‘motor fuel’, which these laws rely on, only includes petrol and compressed natural gas, but not diesel. With the introduction of volume-based duty on diesel, there is a need to include diesel in the definition, so that Customs can enforce the relevant rules.
12. So we have broadened the definition of ‘motor fuel’ to include any fuel, including diesel, that can power a means of transport. Clause 3 provides for these changes.
13. Second, we will amend the Act to clarify the processes by which Customs will deal with changes to the rate of special taxes for motor vehicles.
14. Currently, special tax is levied on diesel vehicles and paid together with the tax for the vehicle licence for either a 6-month or 12-month period. The Customs Act does not state what happens when the special tax rate is changed in the middle of a period that has already been paid for, or the current period for short. For instance, the special tax was reduced at Budget 2017 (on 20 February 2017) which would have been during the current period for some vehicle owners.
15. So we need to amend the Act to provide greater clarity going forward on how the amount of special tax payable should be calculated when there are different special tax rates within the current period. In particular, the amendment will allow the Minister for Finance to prescribe the effective date of the new rate, and the treatment for overpayment or underpayment of special tax. For example, the Minister can prescribe that any overpayment can be offset against any other tax, levy or fee payable under the Road Traffic Act in respect of the motor vehicle. Clauses 7 to 9 provide for these changes.
16. Third, we will give authorised Customs officers the discretion to let vehicles which have flouted the three-quarter tank rule, but cannot U-turn at the checkpoint, to leave Singapore after imposing the fine.
17. I spoke earlier about the minimum motor fuel requirement for motorists departing Singapore. Currently, motorists caught flouting this rule at the land checkpoints will be fined, and must U-turn to top up their fuel tank before they can leave Singapore.
18. With the expanded definition of ‘motor fuel’ mentioned earlier, the rule will now apply to diesel-powered vehicles. But it may not always be possible for larger diesel-powered vehicles, like coaches and trucks, to U-turn if they are caught, due to infrastructure constraints.
19. For practical reasons, such motorists have to be allowed to leave Singapore while still being held liable for trying to leave Singapore without the required minimum amount of fuel. Clause 15 gives Customs officers the discretion to allow this.
20. Customs will explore imposing a comparatively higher penalty for such vehicles, to maintain parity with vehicles made to U-turn.
Improve Singapore Customs’ operational efficiency
21. Next I move to the second set of amendments which improve Customs’ efficiency in carrying out its daily operations, and there are three key changes.
22. First, we will extend the time limit for the recovery of short-levied and erroneously refunded duties, taxes, or other charges from one to five years, and remove the time limit for the recovery of duties due to fraud and wilful default.
23. Short-levied and erroneously refunded duties can arise due to incorrect calculations or deliberate attempts to defraud Customs on the duties and GST payable. Some cases of underpaid duties and GST may only be uncovered more than one year after the event of underpayment.
24. This change will give Customs greater operational flexibility to seek recovery of short-levied and erroneously refunded duties and GST. The revised time limit will be aligned with the requirement for companies to keep records for five years under the Income Tax Act and GST Act. Clause 11 provides for the changes.
25. Second, we will extend the time limit for submission of claims for refund of duties, taxes, or other charges overpaid or erroneously collected from one to five years.
26. Currently, Customs is unable to accept claims for refunds made more than one year after overpayment or erroneous collection. Such situations can arise when traders, after tallying their accounts at the end of their financial year or through audits, realise that they have overpaid duties and GST on their import permit applications made more than a year ago.
27. This amendment will give more time for traders to discover any errors in payment to Customs. This will also align the time allowance in the Customs Act with that of the GST Act. Clause 10 provides for this change.
28. Third, we will allow the Director-General of Customs (or DG-Customs) to delegate powers granted to him by the Act, without needing to seek the approval of the Minister for Finance.
29. Currently, approval from the Minister for Finance is required for DG-Customs to delegate any of his powers to senior officers of Customs. Some powers such as waiver of payment and granting of licences may need to be delegated from time to time to ensure efficiency of Customs’ daily operations. These powers tend to be operational in nature. This amendment will streamline the administrative processes for such delegation.
30. This particular amendment also aligns the administration of the Customs Act with that of the GST Act and Regulation of Imports and Exports Act (RIEA). These latter two Acts empower the Comptroller and DG-Customs to delegate powers without needing to seek the approval of the Minister for Finance or the Minister for Trade and Industry respectively. Clause 4 provides for the changes.
Provide legal clarity on current policies
31. Next, I turn to the amendments to provide legal clarity to current policies. I would like to highlight two key changes pertaining to collection and re-imposition of duties.
32. First, we will provide clarity that there will be collection of customs or excise duties and import GST on goods used or consumed in a Free Trade Zone (FTZ).
33. Duties and import GST are imposed on goods imported into Singapore for use and consumption. On the other hand, transhipment goods stored in the FTZs, or Free Trade Zones, which are designated areas at the ports and airport that facilitate entrepot trade, enjoy temporary suspension of customs or excise duties and import GST, as they are not meant for usage and consumption here.
34. However, if these goods are used or consumed within FTZs, then the suspension ceases to apply.
35. Currently, the Act is worded generally to impose liability for duties and GST for any goods in FTZs that cannot be accounted for. This change will provide legal clarity that goods used or consumed within FTZs are liable for duties and GST, in line with existing policy intent. Clause 14 provides for the change.
36. Second, Customs will be given the flexibility to re-impose duties on goods which cease to be duty-exempt, based on the value at the time of importation or at the time the exemptions cease.
37. Certain goods may enjoy duty exemption upon import, and then be liable for duties later on when the conditions of the exemption no longer hold. One example is that embassies are entitled to duty exemption when they import motor vehicles for official use. But if the motor vehicle is subsequently sold to a person that is not eligible for the exemption, the duty exemption will cease to apply, and duties will need to be levied and paid on the motor vehicle.
38. Customs currently re-imposes duties on a good based on its value either at importation, or when the exemption expires, depending on the circumstances. This is determined by Customs based on factors such as the nature of the good and conditions of the exemption.
39. This amendment will provide clarity in the Act that Customs has the flexibility to re-impose duties based on the value either at importation, or when the exemption ceases. Clause 6 provides for the change.
Conclusion
40. In summary, Mr Speaker, the Bill will help Customs to implement the recent tax changes on diesel, and enable Customs to carry out its day-to-day operations more efficiently. The Bill will also provide legal clarity to current policies.
41. Mr Speaker, I beg to move.