Second Reading Speech By Mrs Lim Hwee Hua Minister Of State For Finance On The Goods And Services Tax (Amendment) Bill 2007, at The Parliament, 22 May 2007

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

2. The Goods and Services Tax (Amendment) Bill 2007 comprises two groups of changes. The first group related to changes announced in Budget Statements 2006 and 2007. The second group covers other amendments to the Goods and Services Tax Act arising from regular reviews to improve our GST system.

3. A public consultation on the Goods and Services Tax (Amendment) Bill that was drafted for the 2006 changes was conducted from 8th September to 6th October 2006. The draft Bill has been revised to incorporate the suggestions made by businesses.

GST BUDGET CHANGES

4. Let me first highlight the amendments related to the Budget Changes.

(a) GST Rate Increase
To broaden our tax base, and to enable the Government to grow our economy and implement Workfare and other initiatives to strengthen social cohesion, the GST rate will be increased from 5% to 7% with effect from 1st July 2007. This change, which was actively discussed in this House during the recent Budget Statement debate, is reflected in Clause 2 of the Bill.

(b) Zero-rating treatment for prescribed tools used in the manufacture of goods for export
Presently, the supplies of tools made to overseas clients but used in Singapore for the manufacturing process attract GST. To enhance the cost competitiveness of local manufacturers and to recognise that such tools are business inputs and do not constitute private consumption per se, the supply of prescribed tools made to overseas clients will be zero-rated if the tool is used in Singapore exclusively for the manufacture of goods for export. Clause 5 of the Bill reflects this change.

(c) GST exemption for prescribed Shariah-compliant financing arrangements
To promote Shariah-compliant financial activities in Singapore, the effective return arising from the provision of prescribed Shariah-compliant financing arrangements, in relation to the purchase of non-residential property, will be exempted from GST. The change will harmonise the GST treatment of prescribed Shariah-compliant financing arrangements with their conventional loan product counterparts to ensure a level playing field. This change is provided in Clause 11 of the Bill.

(d) Deemed input tax credits for insurers
Presently, there are no input tax credits for insurers on cash payments made upon the occurrence of an insured event under an insurance contract. As a result, GST is collected on gross premiums which are not reflective of the true value-add of insurance services. To capture the true value-add and to reduce the business costs of insurers, insurers will be allowed to claim deemed input tax credits on cash payments made under certain insurance contracts that are subject to GST. Clause 6 of the Bill reflects this change.

(e) Reduction of record-keeping period from 7 years to 5 years
Presently, GST-registered businesses are required to keep GST records for 7 years. To reduce business compliance costs and to support enterprise and entrepreneurship, Clause 8 of the Bill amends the GST Act to reduce the record-keeping period from 7 years to 5 years. This change is in line with the general move to reduce the record-keeping requirement for businesses down to 5 years to provide consistency for businesses.

OTHER TAX CHANGES

5. Let me now move on to the second group of tax changes covered by this Bill. These amendments arose from our regular reviews to improve the GST system.

(a) Advance Rulings System
To provide greater clarity and certainty to taxpayers, an advance rulings system for GST will be formalised and enshrined in law with effect from 1st July 2007. Any ruling issued under the advance rulings system will bind the Comptroller of Goods and Services Tax to apply the statutory provisions in the manner as set out in the ruling. Clauses 10 and 12 of the Bill provide for binding advance rulings, the circumstances under which the Comptroller shall, may or may not provide the rulings, and their fee structure. This is similar to the advance rulings system for income tax, which was introduced last year. Under the advance rulings system for Income Tax, a non-refundable application fee of $525 is payable on the application for rulings. A further fee of $131.25 per hour is payable for any time beyond the first 4 hours, spent in considering the ruling by IRAS. More information on the fees for Income Tax rulings is available on IRAS's website.

(b) Revise GST rules for zero-rating of advertising services
To simplify GST rules, the zero-rating treatment for advertising services will be revised from one that is tied to the advertising subject, to one that is tied to the nature of advertising services.

Where the nature of advertising services relates to concept development, artworks and media planning, the supply will be zero-rated when it is made contractually to and for the benefit of an overseas person.

Where the nature of advertising relates to the sale of media space or airtime, the supply will be zero-rated when the advertisement is circulated outside or substantially outside Singapore. This change is reflected in Clause 4 of the Bill.

(c) Time limit for claims relating to over-declaration of output tax in repayment returns
Presently, there is no time limit provided in law for claims relating to over-declaration of output tax in repayment returns. To provide clarity to taxpayers and to align with the reduced record-keeping period, the GST Act is amended to provide for a time limit of 5 years for claims of refunds relating to over-declaration of output tax in repayment returns. The amendments are provided in Clauses 7(b) and 9 of the Bill.

(d) Consequential amendments arising from the reduction of GST record-keeping period
Pursuant to the reduced GST record-keeping period, the time limits for GST-registered businesses to re-claim input tax that is paid late to suppliers and for the Comptroller to raise additional assessments will be revised to 5 years. Clauses 3 and 7(a) of the Bill reflect these changes.

CONCLUSION

6. Mr. Speaker, Sir, I beg to move.