Summary of responses to public consultation on the draft Goods and Services Tax (Amendment) Bill 2020

1. The Ministry of Finance (MOF) invited the public to provide feedback on the draft Goods and Services Tax (Amendment) Bill 2020 (“GST Bill”) from 20 July to 7 August 2020^[1]. The draft GST Bill proposes legislative amendments to introduce measures to enhance the Comptroller of GST’s powers to safeguard public monies and investigate tax offences. The draft GST Bill also proposes changes arising from the periodic review of the GST regime, and technical amendments.

2. The key feedback received pertained to the following tax changes:

• Introduce measures to counter Missing Trader Fraud;

• Enhance the GST rules to counteract tax avoidance arrangements; and

• Introduce a surcharge for tax avoidance arrangements.

Responses to the key feedback are in Annex A.

3. The proposed legislative changes will be incorporated into the Goods and Services Tax (Amendment) Bill 2020 to be presented to Parliament in the last quarter of 2020. MOF thanks all individuals and organisations who have taken the time and effort to provide their input.

Issued by:
Ministry of Finance
Singapore
2 October 2020 

Annex A: MOF’s responses to key feedback on the draft Goods and Services Tax (Amendment) Bill 2020

1. Introduce measures to counter Missing Trader Fraud

Denial of input GST claim if the business knew or should have known that his purchase was part of or connected with a fraudulent arrangement.

• a) Feedback: To limit the compliance cost for businesses, particularly smaller businesses, and adopt a targeted approach to countering Missing Trader Fraud by:
  
  Smaller businesses may also not have the capabilities to conduct the additional due diligence checks.
  
  MOF’s response: Not accepted. Missing Trader Fraud is a fraud scheme used by syndicates, where the seller absconds with the GST charged on his sales (“Missing Trader”), while businesses along the supply chain continue to claim refund of GST incurred on their purchases (“input GST claim”). Missing Trader Fraud has been detected in Europe and IRAS has encountered such cases in Singapore. Syndicates make the detection of the Missing Trader difficult, by interposing many businesses along the chain to deter the Inland Revenue Authority of Singapore (“IRAS”) from tracing back to the Missing Trader. It is critical that businesses undertake adequate and appropriate due diligence checks, as well as actions and precautions in response to the risks identified through the checks, to avoid being involved in a fraudulent arrangement; hence our proposed amendment in this GST (Amendment) Bill.
  
  Over the recent years, the Government has stepped up measures against Missing Trader Fraud. In 2017, we introduced Customer Accounting (where the buyer, rather than the seller, reports and collects the GST on the good sold) for goods that are commonly used in Missing Trader Fraud, namely mobile phones, memory cards, and off-the-shelf software. This change took effect from 1 January 2019. IRAS has published information on its website, with tips on how businesses can avoid being drawn into a Missing Trader Fraud arrangement, e.g. being wary if a deal is “too good to be true” and carrying out due diligence checks for new business arrangements.
  
  However, Missing Trader Fraud can be adapted, and perpetrated across industries. Applying our proposed amendments to only selected industries or groups of persons will dampen the effectiveness of this measure in countering Missing Trader Fraud, as syndicates will likely target businesses or transactions that fall outside the scope of the proposed measure. Such businesses or transactions will become more vulnerable to Missing Trader Fraud
  
  It is in the interest of all businesses to conduct due diligence checks on their transactions, as part of good corporate governance. Bona fide businesses would generally already conduct due diligence checks on their transactions.
  
  Under the proposed amendment, the burden of proving that the GST-registered business knew or should have known of the fraudulent arrangement lies on the Comptroller, with the standard of proof being the balance of probabilities. Businesses that disagree with the Comptroller’s decision may apply for review and revision of the decision under section 49 of the GST Act. If businesses disagree with the Comptroller’s review and revision of the decision, they may appeal to the GST Board of Review.
  
  b) Feedback: To provide guidance on what constitutes “reasonable steps” in sections 20(2D) to 20(2F), which businesses should take to avoid being involved in a fraudulent arrangement.
  
  MOF’s response: Accepted. IRAS will publish an e-Tax Guide to provide such guidance on what amounts to “reasonable steps” in relation to the due diligence checks, as well as actions and precautions that GST-registered businesses could take in response to the risks identified through the checks. IRAS will also continue to conduct industry outreach on the due diligence checks that GST-registered businesses can conduct to avoid being involved in Missing Trader Fraud.
  
  Examples of these reasonable steps include, and are not limited to, the following:
  
  In general, businesses should be wary of high-value deals offered by newly established or unknown suppliers, and deals that seem “too good to be true”.
  
  c) Feedback: To clarify if GST-registered businesses which took reasonable steps to avoid being part of a fraudulent arrangement but ended up being involved in such arrangement would have their input tax claims denied and the surcharge of 10% imposed.
  
  MOF’s response: If the Comptroller assesses that businesses took reasonable steps to ascertain whether the supply was part of a fraudulent arrangement and concluded that the supply was not a part of such arrangement, and that the conclusion is one that a reasonable person would have made, their input GST claims would not be denied. This is provided for in section 20(2F). Correspondingly, the surcharge of 10% would not be imposed.
  
  Exempt the Comptroller from the requirement to refund input GST within 3 months after the receipt by the Comptroller of all the information requested by the Comptroller, if the underlying purchase is suspected to be part of or connected with Missing Trader Fraud.
  
  d) Feedback: To prescribe a time frame where the Comptroller must determine whether a supply was part of Missing Trader Fraud and refund the input GST accordingly, as the proposed amendment may have adverse impact on businesses’ cash flow.
  
  MOF’s response: Not accepted.
  
  We expect most businesses to be compliant.
  
  In limited circumstances where IRAS needs to conduct an investigation, it is critical that these investigations are thorough, especially where the arrangement is suspected to be fraudulent. It is necessary to allow sufficient time for the investigation, particularly given the complexity of Missing Trader Fraud arrangements, including the existence of multiple third parties that IRAS may need to investigate. Syndicates make the detection of the Missing Trader difficult, by interposing many businesses along the chain to deter IRAS from tracing back to the Missing Trader.
  
  This proposed amendment is similar to practices in Australia and New Zealand.

2. Enhance the GST rules to counteract tax avoidance arrangements (“anti-avoidance rules”)

• a) Feedback: To clarify why the clause "which would otherwise not have been obtained at the time at which it was obtained" is included in subsection 47(1)(d) but not in 47(1)(e).
  
  MOF’s response: Subsection 47(1)(d) covers tax avoidance arrangements that take advantage of the mismatch in timing between input tax claims by one party and accounting of output tax by another party, to gain an advantage in GST claims. On the other hand, subsection 47(1)(e) covers tax avoidance arrangements involving unjustified bad debt relief claims. Due to the criteria that must be satisfied before a bad debt relief claim can be made (i.e. one year to have passed from the date of supply, or insolvency), there are no similar timing mismatch issues for bad debt relief claims that would result in an advantage in GST claims.

3. Introduce a surcharge for tax avoidance arrangements

• a) Feedback: Provide clarity on how the penalty provisions in the GST Act and the section 45A surcharge^[2] would work in tandem with the section 47A surcharge for tax avoidance arrangements.
  
  MOF’s response: The penalty provisions under sections 58, 59, 62, 63 and 64A of the GST Act, and the proposed surcharge under section 47A of the GST Act, serve different purposes. The penalty provisions under sections 58, 59, 62, 63 and 64A of the GST Act prescribe general penalties, penalties for filing of incorrect tax return and tax evasion penalties for criminal offences committed. These are separate from the proposed surcharge under section 47A of the GST Act, which is a civil liability that is imposed on a taxpayer who entered into a tax avoidance arrangement.
  
  Similarly, the surcharge for tax avoidance arrangements under section 47A, and the section 45A surcharge, serve different purposes. The surcharge under section 47A applies to an arrangement that is carried out with tax avoidance as one of its main purposes and not for bona fide commercial reasons. The objective of the surcharge under section 45A is to deter Missing Trader Fraud and applies to input tax denied for GST-registered businesses that should have known that their purchase was part of or connected with a fraudulent arrangement.
  
  b) Feedback: A 50% surcharge on adjustments made by the Comptroller for tax avoidance arrangements is onerous and too high.
  
  MOF’s response: Not accepted. Currently, there is no surcharge being imposed on tax avoidance arrangements, and existing anti-avoidance provisions only restore taxpayers to their initial tax position, as if the arrangement had not been entered into. The proposed surcharge quantum is set at 50% to ensure that there is sufficient deterrence against GST avoidance arrangements.

^[1] Please refer to the press release issued on 20 July 2020 for the public consultation documents on the draft Goods and Services Tax (Amendment) Bill 2020.

^[2] This refers to the surcharge of 10% on the amount of input GST denied for a GST-registered business which should have known that its purchase was part of or connected with a fraudulent arrangement.