The Ministry of Finance has accepted for implementation 11 of the 22 suggestions on the draft Goods and Services Tax (Amendment) Bill 2011. The suggestions were received during the public consultation exercise held from 8 to 28 July 2011. They will be incorporated into the revised Goods and Services Tax (Amendment) Bill 2011 or IRAS’ e-tax guides. One suggestion has also been accepted for further study. The remaining suggestions were not accepted for implementation as they are inconsistent with legislative drafting conventions or the policy objectives for the proposed legislative changes.

Draft Goods and Services Tax (Amendment) Bill 2011

The draft Goods and Services Tax (Amendment) Bill 2011 proposed legislation to put into effect tax changes announced in Budget 2011, as well as changes arising from the periodic review of the Goods and Services Tax system. The key changes include:

1. A new scheme for ‘approved marine customers’ to buy or rent zero-rated goods for use or installation on internationally-bound commercial ships;
2. Expansion of scope for zero-rating of repair and maintenance services and easing of compliance requirements for the marine industry;
3. Enhancement and extension of the Approved Contract Manufacturer and Trader (ACMT) Scheme to include qualifying biomedical contract manufacturers;
4. New zero-rating relief for specified supplies made to overseas persons for goods kept in ‘approved specialised warehouses’ in Singapore; and
5. Expansion of scope for recovery GST on goods imported on behalf of overseas persons.

Public Participation in the Consultation Exercise

A summary of the key suggestions received on the draft Goods and Services Tax (Amendment) Bill 2011 and MOF’s responses are as follows:

1. Suggestion: In the legislative amendments to ease documentary requirements for a qualifying ship used for pleasure, recreation, sports or other similar events, it is required that the importer "satisfies the senior officer of customs that the imported ship is one as defined in section 21(4)(a) of the GST Act". It is proposed that this condition be removed as the GST Act has clearly provided for the definition of 'ship' and that documentary requirement has been waived for this item.

MOF’s response: Accepted. We agree to remove the condition that the importer must satisfy Singapore Customs (SC) that the ship is a qualifying ship. Instead, the importer has to self-assess his eligibility for the relief and upon request from SC, provide evidence to support his claim that the incoming ship falls within the definition of 'ship'.

2. Suggestion: The GST legislation currently does not define "treatment" or "process". The IRAS e-Tax guide on the Approved Contract Manufacturer and Trader (ACMT) Scheme provides that the following value added activities are disregarded for GST purposes – "processing, assembly, testing and other manufacturing-related types of activities where the form and nature of the goods have changed." To cater for the inclusion of the biomedical industry under the enhanced ACMT scheme, IRAS may wish to provide more clarity and expand on the types of value added activities which will be disregarded for GST purposes.

MOF’s response: Accepted. We agree to improve the clarity of the ACMT scheme by including the relevant value-added activities (such as quality control testing) that will be disregarded for GST purposes under the ACMT scheme. We will also review and consult the industry if pre-production activities such as R&D should also be included in the value-added activities to be disregarded for the ACMT scheme.

3. Suggestion: The amendments to section 37A do not seem to cater to the situation whereby the goods are destroyed or disposed by the approved taxable person himself. The proposed section 37A(2) suggested that the treated or processed goods must be delivered. But there could be situations where the goods are simply destroyed during the process or treatment. As such, it is proposed that the legislation be amended to allow the taxable person to self-destruct failed or excess production under the ACMT scheme.

MOF’s response: Accepted. We will provide the flexibility to cater for the self-destruction scenario. We understand that the destruction or disposal of failed or excess production is typically performed by a third party waste management vendor. Nevertheless, taxpayers who wish to self-destruct their ACMT goods may seek IRAS’ approval with proper evidence that the goods have indeed been destroyed.

4. Suggestion: Amongst the expanded scope of zero-rating repair and maintenance services performed on ship parts and components is the scenario where the supplier provides a reconditioned ship part or components in exchange for the faulty part as part of the supply of repair services. It is proposed that this scenario be added in the Second Schedule of the GST Act ("Matters to be treated as a supply of goods or services").

MOF’s response: Rejected. We wish to clarify that the legislative amendments for this scenario is already included in the existing GST Order i.e. paragraph 1(c) of the Sixth Schedule in the GST (International Services) (Amendment) Order, under “the repair and maintenance of any ship where any part or component of the ship is removed and repaired by way of an exchange with an identical part or component...”

5. Suggestion: Together with the introduction of the two new GST schemes (i.e. the Specialised Warehouses Scheme and the Approved Marine Customers Scheme), the Comptroller is empowered to impose taxes that should be chargeable should there be a failure to comply with any condition or requirement of the respective schemes. This penalty provision appears to be too severe for businesses and could be difficult to comply with, especially for businesses that make unintentional GST errors. It is proposed that the penalty provisions of such special GST schemes be revamped and specified in the general penalty regime instead.

MOF’s response: Rejected. As taxpayers under the special GST schemes enjoy GST privileges, they have to put in place internal controls to safeguard against non-compliance. The general penalty regime is insufficient to deal with the potential revenue risks in event of non-compliance. A fixed quantum of penalty is also not equitable to smaller businesses, and may not be sufficient incentive for larger businesses to be more compliant.

MOF would like to thank all respondents for their suggestions.