The Ministry of Finance (MOF) has accepted for implementation 20 out of the 38 suggestions on the draft Goods and Services Tax (Amendment) Bill 2010. The suggestions were received during the public consultation exercise held from 1 to 18 June 2010. They will be incorporated into the revised Goods and Services Tax (Amendment) Bill 2010 or IRAS’ e-tax guides. Two suggestions have also been accepted for further study. The remaining 16 suggestions were not accepted for implementation as they are inconsistent with legislative drafting conventions or the GST policy objectives for the proposed legislative changes.

Draft Goods and Services Tax (Amendment) Bill 2010

The draft Goods and Services Tax (Amendment) Bill 2010 contains proposed legislation to put into effect the following tax changes announced in Budget 2010, as well as other changes arising from the periodic review of the Goods and Services Tax system:

1. Budget 2010 changes – These are tax changes announced in the 2010 Budget Statement which seek to ease the cash-flow management of businesses and lower their GST compliance costs:
• Expand the scope of zero-rating of GST for the marine and aerospace industry;
• Simplify the accounting of GST on most supplies to the earlier of invoice date or payment date;
• Introduce a new scheme to allow approved businesses to defer import GST that is currently payable on goods at the point of their entry into Singapore;
2. Other changes – These changes arise from the ongoing review of the GST regime, and seek to clarify existing GST legislation or to improve GST administration:
• Clarify that GST is not chargeable on (i) imported goods that are supplied and remain within Free Trade Zones, Zero-GST or Licensed Warehouses; and (ii) goods that are locally manufactured, supplied and remain within warehouses licensed under the Customs Act;
• Update the GST Act to align with the methods of valuation as prescribed in Customs legislation or the last selling price, where applicable, for the purpose of valuation of imported goods and thus the levying of import GST;
• Clarify the definition of residential property for the purpose of GST exemption;
• Introduce measures to facilitate the self-assessment of transactions qualifying under the Approved Contract Manufacturer and Trader (ACMT) scheme; and
• Allow the Comptroller of GST to provide for a wider scope of electronic services.

Public Participation in the Consultation Exercise

During the public consultation exercise held from 1 to 18 June 2010 to obtain feedback on the draft Goods and Services Tax (GST) (Amendment) Bill 2010, a total of 38 comments on the proposed changes were received from the public, of which 22 pertained to the simplification of GST-accounting for GST-registered businesses. MOF has considered all the comments received carefully. 20 of the 38 comments have been accepted for implementation and will be incorporated into the revised Goods and Services Tax (Amendment) Bill 2010 or IRAS’ e-tax guides. Another two suggestions have been accepted for further study. The remaining 16 comments which were not accepted for implementation were inconsistent with legislative drafting convention or the policy objectives of the proposed legislative changes.

A summary of the key comments received and MOF’s responses to them are as follows:

Clarify the definition of residential property for the purpose of GST exemption

1. Comment: The proposed amendment in the draft GST (Amendment) Bill 2010 to clarify the definition of a residential property for the purpose of GST exemption should take prospective effect. This is because businesses may have adopted the GST treatment based on the current legislation and would not be complying with the GST legislation if such amendment takes retrospective effect.

MOF’s response: Accepted for implementation.The suggestion is consistent with our intention of effecting this amendment to the GST Act prospectively from 1 Jan 2011 via the GST (Amendment) Act Commencement Notification.

Simplify the accounting of GST on most supplies to the earlier of invoice date or payment date

2. Comment: Under the draft GST (Amendment) Bill 2010, a person is required, upon the request of customers who are not GST-registered, to treat a supply as having taken place prior to his GST registration and thus not charge GST on the supply, where the goods are delivered or services are performed before the date of his GST registration.

On the basis of equity, we would like to propose that this option be made available to all customers (i.e. both GST-registered and non-GST registered). This is especially in view that some GST-registered customers may be partially exempt and thus would not be able to recover the input tax in full.

MOF’s response: Accepted for implementation with modifications. Currently, GST-registered suppliers need not charge GST on goods delivered or services performed prior to their GST registration. We recognise that the simplification of accounting rules may affect some customers of newly GST-registered businesses. Suppliers will have to charge GST for all invoices issued after they are GST-registered regardless of whether the goods were delivered or services were performed before their GST registration. We note that this change would have no impact on customers who are able to fully claim back the GST payable as input GST. However, to mitigate the impact on customers who are unable to claim back the full amount of GST payable, we will allow the newly GST-registered suppliers to not charge GST on goods delivered or services performed prior to GST registration upon receiving a request from such customers. This will benefit non GST-registered customers as well as GST-registered customers who are partially exempt and unable to claim the GST on their purchases in full. IRAS will clarify in the e-tax guide on the steps newly GST-registered suppliers can take to determine whether the customer qualifies for this GST treatment.

3. Comment: The draft GST (Amendment) Bill 2010 provides that where a person who is, or is required to be, registered under the GST Act makes a supply of goods or services prior to the date of GST-registration, then the person making the supply shall, if the person to whom the supply is made so requests, treat the supply as taking place
1. in the case of goods, when the goods are removed or made available, or
2. in the case of services, when the services are performed.

As it is generally the liability of the person making the supply to charge and account for GST, it is unclear why it is necessary for the person to whom the supply is made need to request for this tax treatment. It may be easier if the decision whether to apply this tax treatment is made by the person making the supply. It is suggested that this tax treatment be accorded even if the person to whom the supply is made does not request for the treatment.

MOF’s response: Not accepted for implementation. As explained in our response in (b), we will allow newly GST-registered suppliers to not charge GST for goods delivered or services performed before their GST registration in respect of customers who are unable to claim their input GST in full. Newly GST-registered suppliers are only required to do so for customers who make a request for this GST treatment. This is to relieve the newly GST-registered suppliers from the administrative burden of having to track all their customers and verifying if they are able or unable to claim their input GST in full.

4. Comment: The draft GST (Amendment) Bill 2010 requires a person to account for output tax based on the new time of supply rules (i.e. earlier of invoice or payment) even if the goods are delivered/services performed before the supplier is GST registered unless the recipient is a non-GST registered person and he makes a request for the time of supply to be based on goods delivery date/services performance date. On the other hand, the proposed amendments require a GST registered person to account for output tax before he is de-registered even though based on the new time of supply rules, he would not be required to do so (i.e. even if the goods are delivered/services performed after he is de-registered). This does not appear to be equitable. We propose consistency in accounting for GST under the time of supply for both transactions that span the GST registration and deregistration period.

MOF’s response: Not accepted for implementation. Registration and de-registration are distinct points in the lifecycle of a GST-registered business. It does not follow that the two should be governed by the same rules. Rather, the rules governing each point should ensure ease of GST compliance while safeguarding GST revenue.

The new time of supply rules aim to reduce the costs of compliance for the GST-registered businesses. In particular, newly GST-registered suppliers will not need to charge GST on goods or services that were delivered or performed prior to their GST registration to customers who are unable to claim back the GST as input tax.

We will continue to require GST-registered suppliers to charge GST on their sales where the goods were delivered or services were performed prior to their deregistration. This is to prevent GST avoidance by GST-registered suppliers through intentionally delaying issuance of tax invoice or payments till after deregistration. This outcome is also not unfair to customers who have acquired the goods or services from a GST-registered person at the time of purchase.

5. Comment: The current GST Act provides that the basic tax point for a supply of goods is as follows –
1. if the goods are to be removed, at the time of the removal;
2. if the goods are not to be removed, at the time when they are made available to the person to whom they are supplied.

In the draft GST (Amendment) Bill 2010, the basic tax point has been simplified to “where the supply is a supply of goods, the goods were either removed or made available”. This changes the interpretation of the basic tax point. To illustrate, in the situation where goods are to be removed by the customer, and if the supplier makes available the goods to the customer prior to the removal of the goods, the time of supply of goods based on the interpretation of the proposed wording would be when the goods are made available and not when the goods are removed, which would not be the case under the current GST Act. Since it does not appear that the basic tax point for the supply of goods has been changed, we propose to adopt the existing wording.

MOF’s response: Accepted for implementation. We have amended the GST (Amendment) Bill 2010 to retain the current drafting as it was not our policy intent to change the GST rules governing the basic tax point for supplies of goods.

MOF would like to thank all respondents for their comments.