Second Reading Speech By Mrs Lim Hwee Hua, Minister of State for Transport and Finance, on The Goods and Services Tax (Amendment) Bill 2005, at The Parliament, 21 Nov 2005

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

2. The Bill will amend the Goods and Services Tax Act to give legislative effect to the following measures to:

a) require a customer to repay input tax claimed if he fails to pay his supplier 12 months from the due date of payment;

b) zero-rate maintenance, repair and broking services of ships or aircraft without the current requirement that they are provided to an owner, operator or agent of the ships or aircraft;

c) zero-rate electronic services relating to trade declarations for the import or export of goods to and from Singapore via road, rail and mail; and

d) prescribe that electronic filing be the only mode of filing for prescribed classes of businesses.

3. Sir, I shall now explain the amendments in the Bill.

Repayment of input tax upon failure to make payment to the supplier

4. Presently, bad debt relief may be granted to a taxable person who is unable to recover from his customer the full consideration of the supply, including the output tax that is accounted to the Comptroller of GST earlier. In turn, the customer is required to repay to the Comptroller the amount of GST which he had earlier claimed as input tax as long as the supplies are those for which bad debt relief was granted by the Comptroller. This approach is not satisfactory. Since the supplier is unlikely to inform the customer of the bad debt relief if he still harbours the intention to recover the debt, the customer may not know that bad debt relief has been granted to the supplier.

5. Section 19 of the GST Act is now amended to require that the customer is obliged to repay the input tax which he has already claimed as long as he fails to pay the supplier 12 months from the due date of payment. The change ensures that government revenue is duly protected as the customer who has not paid any GST on his purchases to the supplier should repay to the Comptroller this amount of GST which he had earlier claimed as input tax. The recovery of the input tax is no longer tied to the supplier being granted the bad debt relief.

Zero-rating of Maintenance, Repair and Broking Services of Ships and Aircraft

6. Currently, maintenance, repair and broking services for a ship or aircraft are zero-rated on the condition that the services are provided to the owner, operator or agent of a ship or aircraft, as these qualify as international services. But since the maintenance, repair and broking services are directly related to ships or aircraft, it is not necessary to restrict zero-rating only to where they are provided to the owner, operator or agent. Based on feedback from business, we have amended Section 21(3)(p) of the GST Act to remove this requirement. The change will ease the cash flow of main contractors because they no longer need to pay GST on their payments to their subcontractors and then claim back from the Comptroller of GST.

Zero-rating of Electronic Services Pertaining to Trade Declarations for Import and Export of Goods via Road, Rail and Mail

7. The GST legislation currently allows for zero-rating for electronic services pertaining to trade declarations for import and export of goods via sea and air. However, the same services relating to import and export of goods via road, rail and mail are excluded.

8. As these electronic services are related to the import or export of goods, the GST treatment for the different modes of transport should be the same. Therefore, a new Section 21(3)(t) is enacted to allow electronic services prescribed by MOF that are related to the import and export of goods to be zero-rated. The amendment will enable electronic services relating to trade declarations for the import and export of goods via road, rail and mail to qualify for zero-rating.

Compulsory Electronic Filing of Returns

9. GST-registered businesses generally file their GST returns quarterly. As part of the Government's initiative to promote electronic services, IRAS launched the web-based GST electronic filing service in December 2004. Section 41(4) has been amended to provide for compulsory electronic filing. The initiative to make electronic filing compulsory is in line with our E-Government movement to promote electronic services and eliminate manual transactions where feasible.

10. Although IRAS has been educating GST businesses on using the electronic service and helping businesses who have problems submitting their returns electronically, there is a concern that small businesses may not be ready for compulsory electronic filing. To address this concern, the amendment will give MOF the flexibility to make electronic filing compulsory only for classes of persons prescribed by MOF. IRAS will consider the needs of different groups of businesses and implement compulsory electronic filing in phases. The effective date for compulsory electronic filing has not been provided in the amendment but will be announced through gazette notification at a later date.

Conclusion

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