GOODS AND SERVICES TAX (AMENDMENT) BILL

GOODS AND SERVICES TAX (AMENDMENT) BILL: Order for Second Reading read.

The Second Minister for Finance (Mrs Lim Hwee Hua): Mr Speaker, Sir, I beg to move, “That the Bill now be read a Second time."

The Goods and Services Tax (Amendment) Bill 2009, or the GST Bill in short, comprises five amendments. The first two amendments give legislative effect to the GST initiatives announced in the 2009 Budget Statement, while the other three amendments arose from our ongoing review of the GST system.

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The draft GST Bill was released for public consultation in June 2009, and has been revised to incorporate a number of suggestions from businesses and members of the public.

Let me first touch on the provisions in the GST Bill that give legislative effect to the GST changes announced in the 2009 Budget Statement.

Zero-rating of aircrafts used wholly for international travel as well as the sale and lease of aircraft parts forming part of a qualifying aircraft

First, to support the growth of the aircraft Maintenance, Repair and Overhaul (MRO) industry in Singapore, the Government will expand the scope of qualifying aircraft that can enjoy GST zero-rating to include all aircraft, including private aircraft, used wholly for international transportation of goods and passengers. To ease GST compliance costs for the MRO industry, zero-rating is also extended to cover the sale and lease of aircraft parts that form part of a qualifying aircraft. These changes are in line with the zero-rating of international transportation. Clause 2 of the Bill reflects these GST changes.

Suspending GST on goods temporarily removed from Zero-GST or Licensed Warehouses

Second, it was also announced in Budget 2009 that GST will be suspended on goods that are temporarily removed from a Zero-GST or Licensed Warehouse for auctions or exhibitions, provided that the goods, whether sold, but not brought into the domestic market, or unsold during the auctions or exhibitions, are returned to a Zero-GST or Licensed Warehouse subsequently. This is to encourage the growth of the auction and exhibition industry as well as specialised storage facilities in Singapore. This initiative is provided under clause 5 of the Bill.

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I shall now deal with the other three tax changes which require amendments to the GST Act. These changes arose from our periodic review of the GST system.

GST registration to be in the name of the trust

The first pertains to the GST registration of a trust. As a trust is not a legal entity, GST registration is currently done in the name of the trustee carrying on the business of the trust. This can inadvertently be confusing as a trustee can act for multiple trusts at any point in time. The GST Act will thus be amended to allow GST registration to be effected in the name of the trust, while the trustee continues to be liable for the GST matters of the trust. This is similar to how the GST Act presently allows partnerships and limited partnerships to be registered in the name of the partnership, while holding their partners liable for the GST matters of the partnerships. This enhancement is provided under clause 3 of the Bill.

Extending the current GST treatment for physical vouchers to new forms of vouchers

The next change concerns the GST treatment of vouchers. Currently, physical vouchers that entitle the holder to redeem goods or services up to a monetary value as stated on the vouchers do not attract GST at the point of sale of these vouchers. Instead, GST is payable only when the vouchers are subsequently redeemed for goods or services.

Vouchers have evolved over time to include electronic, bar-coded or magnetic strip vouchers. We also need to take into account vouchers where the value is stated in non-monetary terms (for example, phone cards with 100 minutes of talk time). The GST Act will be

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amended to expand and specify the scope of qualifying vouchers for which GST is due only when the vouchers are redeemed, and not at the point of sale of the vouchers. Clauses 4 and 7 of the Bill provide for this change.

Requiring taxpayers to state precisely their grounds of objection to a decision made by the Comptroller of GST

Finally, the GST Bill includes a provision requiring any person applying for a revision of decisions made by the Comptroller of GST to state explicitly their grounds of objection. This requirement is already provided for in the Income Tax Act and Property Tax Act, and should be extended to the GST Act. This change is provided for under clause 6 of the Bill.

Mr Speaker, Sir, I beg to move.

Question proposed.

3.06 pm

Mdm Ho Geok Choo (West Coast): Mr Speaker, Sir, I note that clause 4 of the Bill allows the Minister to make regulations to include vouchers within our GST regime. At present, the sale of vouchers is disregarded, up to its face value, at the point of sale. This is a good move, to prevent leakage of taxes through the savvy use of vouchers by vendors of goods or services.

Also, it is progressive for this provision to include reference to electronic vouchers as well as physical ones. As more transactions are concluded online, it is necessary that we continue to provide for laws that apply to e-commerce as well as conventional commerce.

Sir, I seek a clarification from the Minister. If a voucher provides for a percentage discount, how will the amount

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of GST be calculated? Similarly, if there is a cap on the value that can be redeemed with the voucher, but the consumer is not obliged to redeem the entire value, how will the amount of GST be calculated? Also, Mr Speaker, Sir, I note that the amendments are technical in nature and that this Bill will not involve the Government in any extra financial expenditure. And that is good news.

Sir, since July 2007, the GST has been fixed at 7% and the Government has been giving out sweets to overcome the bitter medicine. The Singapore economy shows signs of improvement but it is still tied to the global economy. Another round of protracted economic downturn in Singapore may necessitate a second Stimulus Package to help the lower income, a move which the Minister for Trade and Industry shot down recently. But what I would like to know from the Minister for Finance is, if the economy falters or stagnates again, will the Government consider reducing the GST rate temporarily to 5%, if no Stimulus Package is in sight?

On this note, I support the Bill.

Mrs Mildred Tan (Nominated Member): Mr Speaker, Sir, thank you for allowing me to speak on this issue. Let me, first, say I welcome the changes to the Goods and Services Tax (GST) Amendment Bill, especially on the issue of aircraft parts. This I see as part of Government's pro-business policy and something to be supported. However, what I would like to ask is why the Government chose not to extend similar benefit to the shipping industry as both industries have always shared similar treatments in the GST legislation.

First, the zero-rating relief for aerospace industry. The changes reflect the fact that Singapore is already a

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leading aerospace hub in the Asia-Pacific region, particularly in the area of maintenance, repair and overhaul of aircrafts. The GST changes announced for the aerospace industry will help to enhance Singapore's status as an aerospace hub. They are also timely, given the on-going redevelopment of the Seletar Airbase into an aerospace park. Under the current law, aircraft qualifying for the zero-rating relief GST at zero percent, instead of 7%, are limited to those that are not used for recreational or pleasure purposes. With the amendments, the definition of a qualifying aircraft will be changed to include those used for recreation or pleasure as long as they are internationally bound. Hence, qualifying aircraft will include all international bound aircraft regardless of whether they are used for commercial, recreational or pleasure purposes.

The definition of "a ship" under GST legislation is a bit of a mouthful. It is "a ship", including an oil rig which is not designed or adapted for use for recreation or pleasure and excludes any vessel licensed under the Maritime and Port Authority Singapore Act as a passenger harbour craft or pleasure craft". There is no amendment made to the definition of "a ship" under this amendment.

Under the supply of aircraft parts, GST-registered businesses can apply for zero-rating relief when they sell or lease aircraft parts that are exported from Singapore. This requires businesses to maintain the relevant export documents to substantiate that the parts supplied are physically exported. Businesses therefore devote a lot of resources to manage GST-compliance documents in order to be able to charge zero percent GST when supplying aircraft parts for export. Under the amendment proposed, businesses in this sector should find it easier to manage their GST compliance. This is because zero-rating would apply on the sale or lease of qualifying aircraft parts so long as

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the parts are certified as airworthy and are designed and built for exclusive use on a qualifying aircraft. The zero-rating relief will apply regardless of the delivery, location of the aircraft parts and the location of customers. In other words, zero percent GST will apply even if the qualifying aircraft parts are sold and delivered locally, leased to a local customer. This eliminates the need for businesses to maintain the relevant export documents that are required currently and hence reduces the GST compliance cost.

Again, there is no similar provision for the supply of parts for ships. This implies that businesses in the shipping industry that are required to maintain relevant export documents, be it purchase orders and delivery orders, to substantiate the parts that are physically exported. Businesses in this sector will therefore continue to devote a lot of time and resources to manage the GST compliance in order to be able to charge zero percent GST when supplying parts for export.

Here, Mr Speaker, Sir, I would like to declare that I am also a partner in the firm, Ernst and Young, and that we had made this point earlier to the Ministry during a public consultation exercise. I am pleased to note that in a release from MOF just last week, it said that this has now been accepted for further study and IRAS will consider if there is a similar scope to extend treatment to ships in subsequent amendments to the Act. We ought to make the law as good as we can and as soon as we can. I urge the Minister to consider including this point under this round of amendments.

Sir, in conclusion, I rise to support the amendments to the Bill and would like the Government to make similar provisions to the shipping industry. This even-handed approach is not only good business practice but, I believe, has good long-term benefits to the overall economic development for Singapore as well.

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3:13 pm

Mrs Lim Hwee Hua: Sir, first, let me thank both Members for their support of the Bill. Mdm Ho Geok Choo has asked a question of detail with regard to how a cash voucher might be used or rather how GST would be computed for a cash voucher where the amount redeemed is actually below the cap indicated on the voucher.

Let me attempt to answer her question. As a cash voucher is a qualifying voucher, GST will be charged on the actual consideration received for the voucher, regardless of how much is actually redeemed or used. This is consistent with the use of all cash vouchers at the moment, regardless of whether or not there is a discount.

Mdm Ho also asked, as a matter of policy, if GST could be reduced to 5% if the economic conditions deteriorate further. Sir, this proposal has been discussed and debated actively during the Budget debate. It is based on similar arguments, so I will refer the Member to the Hansard records. But let me just briefly recap the reasons why a reduction in GST is not desirable. Firstly, the GST is really a tax on the end consumer and businesses which can claim this GST paid back on the inputs from the Government. In fact, a temporary cut would result in more administrative cost because they would have to do it twice. This would actually lead to higher compliance costs. Secondly, a GST cut would not be effective in stimulating demand in the Singapore economy, which is quite clearly evident in the case of the UK where they cut their value-added tax and there were no perceivable effects in terms of an increase in consumer spending at all. Finally, and most importantly, the Minister for Finance has explained in his round-up speech that a 2% GST cut would be less effective in helping the lower and middle-

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income groups, than the measures that were announced in the Budget 2009 statement, to help households. A better way would be to target household assistance schemes at those who would require this assistance more.

Let me now go on to Mrs Mildred Tan's comments. I would like to thank her for a very well argued suggestion to extend the GST scheme for the aircraft parts to the shipping equivalent. As she has said, this is also feedback that we have received during the recent consultation exercise. As the Member has also informed the House, a review is currently under way. But let me just lay out two complications if this were to be applied to the shipping industry or the equivalent, and these would be issues that we would have to address before we make any legislative amendments.

Sir, the first is the concept of international travel. Unlike air travel where there is minimal if not zero risk of abuse, because all jets would be used for international travel as opposed to internal travel, there is a prevalence of local and dual usage of ships within Singapore waters. So it will be very difficult to identify ships that are used wholly for international travel, but it is not impossible. It is an issue that we would have to address.

The second is that the regime for the use of aircraft parts in terms of regulation and requirements is more stringent and well specified. The certification of such aircraft parts and the linkages to qualifying aircraft are straightforward. However, there does not exist a similar stringent regime for ships. Hence, there will be a challenge for IRAS to identify which are the ones that are ultimately meant for qualifying shipping vessels when that comes through.

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Nonetheless, let me once again thank Members for their support of the Bill.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mrs Lim Hwee Hua].

Bill considered in Committee; reported without amendment; read a Third time and passed.