CUSTOMS (AMENDMENT) BILL

CUSTOMS (AMENDMENT) BILL: Order for Second Reading read.

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

The Customs (Amendment) Bill comprises three main categories of changes. The first provides for the simplification and updating of various Customs rules and requirements to make them more business- and public-friendly. The second category covers amendments to the Customs Act to simplify penalty provisions and streamline the enforcement regime. The third enables Customs to better facilitate trade.

Let me now highlight the key changes.

Simplification and updating Customs' rules and requirements

Exempting any person or goods from any provision of the Customs Act

Currently, the Act already provides the Minister for Finance with the power to grant exemption (by Order) from any customs duties, excise duties, taxes, fees or other charges. However, the Act does not provide for the flexibility to grant exemption from Customs rules and requirements. This amendment will enable the Minister to exempt any person or goods from any provision of the Act. Clause 3 will provide the Minister this flexibility to grant exemptions from certain Customs rules, including licensing requirements, when warranted.

_Waiving the permit requirement to import dutiable goods
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The second change relates to the authority to waive the requirement on

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import permit for dutiable goods into Singapore. The proposed amendment allows the Director-General of Customs the flexibility to waive permit requirement on a case-by-case basis. For example, currently, air travellers require a permit to bring in more than 10 litres of liquor, even if the limit is exceeded just slightly. With this amendment, the Director-General may waive the import permit for a bona fide air traveller. Clause 6 of the Bill provides for this change.

Empowering the Director-General of Customs to grant a licence for the manufacture of dutiable goods

The next change likewise relates to the authority to grant a manufacturing licence to manufacture dutiable goods. Providing Director-General instead of the Minister the power to directly approve such licences simplifies the administration of licence application and is consistent with the issuance of other Customs licences. Clause 8 of the Bill provides for this change.

_Issuing a composite licence
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A major change relates to the streamlining of the number of licences for eligible companies. Currently, a company applies for a separate licence for each physical premise to carry out a specified activity, such as manufacturing, warehousing or sale of dutiable goods. For example, a company which carries out two activities at two premises may need to apply for four licences. The proposed amendment allows Singapore Customs the flexibility to grant companies with good risk management control a composite licence for its various activities at the different premises. This reduces the regulatory compliance costs for companies. Clauses 10 and 15 of the Bill provide for the introduction of composite licence.

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Simplification of penalty provisions and streamlining the enforcement regime

Sir, I shall now move on to the second category of amendments that simplify and streamline the current penalty provisions and the enforcement regime under the Customs Act.

_Allowing analyst certificates from other laboratories to be tendered as prima facie evidence
_

The first change relates to the evidence presented in court. Currently, only an analyst certificate from Health Sciences Authority may be used as prima facie evidence in court. The proposed amendment allows analyst certificates from other laboratories specified by the Director-General of Customs to be tendered as evidence in court. This change is covered by clause 11 of the Bill.

_Re-classifying customs offences
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The next change relates to the re-classification of customs offences by mode of commission of the offences. This serves to streamline the various offences for better comprehension. There are no changes to the penalties levied on the offences. There are also no substantive changes in the scope of customs offences other than the consequential change to cater for the introduction of the composite licence. Clauses 12 and 13 of the Bill provide for this change.

Facilitation of trade

Sir, the last category of change seeks to improve the existing Customs process to facilitate trade. The proposed amendments will enable the issuance of Customs Rulings, which are determinations on tariff classification, country of origin and duty treatment. This will

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give traders greater certainty on the customs rules and duties applicable to the goods. Clauses 5 and 14 of the Bill provide for this change.

Miscellaneous amendment on special diesel tax

Finally, Sir, in addition, there is one miscellaneous amendment. The amendment relates to the increase in special diesel tax on taxis from $4,700 to $5,100 that had been collected since July 2004, and the special diesel tax collected from one private hire car since October 2002. The tax increase had been announced and implemented, and the proposed amendment will regularise the tax collection. This is covered by clause 4 of the Bill.

Consequential changes to the Goods and Services Tax (GST) Act

The Bill will also cover one consequential amendment to the GST Act. Clause 16 of the Bill makes an amendment to the GST Act to take account of the abolished licensed factory warehouse scheme in the Bill.

Conclusion

To conclude, Sir, the Customs Act will be updated to be more business-friendly, to streamline the enforcement regime, and to better facilitate trade.

Sir, I beg to move.

Question proposed.

3.05 pm

Mr Gautam Banerjee (Nominated Member): Mr Speaker, Sir, thank you for giving me an opportunity to speak on the Customs Amendment Bill, which I support.

Many countries look to Singapore for leadership when it comes to market

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economics and free trade policies, so we must continue to set a good example for others to follow. Also, given Singapore's important position as a trading and business hub, it is important that we continually review and, if necessary, tweak our laws to retain our competitive edge and remain business-friendly. Clarity and certainty of rules and regulations always go down well with businesses.

Sir, I have a question on the new section 13, which entitles the Minister to exempt persons not just from tax obligations but from any provisions of the Act. Why is it deemed necessary and when is this entitlement likely to be called upon? The concern from both the domestic and international trade community is that this opens the door to unfair competition, unless the circumstances under which the entitlement can be used is more tightly controlled. I believe this section gives quite wide discretionary powers to the Minister and perhaps could be tightened so that waiver is given only for specific circumstances.

Sir, I also have a couple of questions on the rulings process in Singapore. Why do the procedures for the making of customs rulings not set any time limits within which such a ruling should be issued, other than if so required under the terms of an FTA? Separately, are the restrictions on the validity of a ruling, eg, under article 9(b), too restrictive to make the rulings useful for the business community? Private sector players typically will be interested in obtaining a Government ruling if this provides increased certainty and predictability for doing business. The lack of a specific timeframe, the risk of not obtaining a ruling even after much information has been furnished to the authorities, and the potential for easy modification or withdrawal, all diminish the usefulness of the ruling for the business community. We can certainly improve upon the "rulings process" by looking at the European Union, Australia, the US and

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Canada, all of whom either have more "tightly framed rulings processes" or tight administrative service standards to the same effect.

Sir, I would also like to comment on some areas not proposed for amendment but of interest to the business community.

I would like to start by asking whether section 19 could allow for interest to be paid when overpaid or erroneously paid duties are refunded. This would level the playing field and is the practice in the European Union.

Secondly, could section 21 allow for application of valuation and duty at the time when goods are entered into a warehouse, rather than when they are withdrawn from it? Many countries allow the trader to choose which valuation and duty rate to apply, albeit this usually has to be chosen upfront and cannot then be changed. This helps protect the importer from exchange rate fluctuations and allows for a more consistent treatment of domestic charges, such as storage and handling, for duty purposes.

Another area worth a review is whether the implementation of transfer pricing adjustments for customs declaration purposes can be improved through the Customs Act. Increasingly, multinational companies have global transfer pricing agreements underlying the pricing of their products. Most of such agreements allow for retrospective price changes at the end of a certain period. In Singapore, like in many other countries, the mechanism for making retrospective adjustments can be very onerous.

Finally, I would like to ask whether there is any intention to align the import valuation mechanism for dutiable and non-dutiable goods. The import customs valuation for dutiable goods is determined under the Customs Act. However, the import value for non-dutiable goods is determined under the GST Act which, in

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theory, uses a different mechanism but, in practice, appears to follow the customs valuation methods agreed under the WTO Valuation Agreement. The difference can cause confusion and more onerous administration for importers.

3.10 pm

Mrs Lim Hwee Hua: Mr Speaker, Sir, first of all, I would like to thank Mr Banerjee for his very well articulated views as well as his support for the Bill. Let me now try to address his points in turn.

Firstly, I would like to say that we completely agree with him that we should continually review and tweak the laws when necessary so as to remain competitive. I would like to assure him that the amendments would continue to ensure that the Customs rules would remain business-friendly and competitive while at the same time achieving the social and revenue objectives of the Customs Act and our own customs administration.

Mr Banerjee referred to section 13 which is covered by clause 3. The Member's reservations are well put. Let me assure him that this amendment is really to provide for the flexibility to grant exemptions from the licensing requirements should the need arise, and I would like to describe further how the Minister would proceed with this exercise. The exemption will be applied judiciously when it is clear that there is no or minimal social or revenue risk and where it does not detract from market competition. Let me illustrate with a simple example as to why we have moved this amendment.

For example, there is the home brewing scheme. With this change, we will now exempt individuals who home-brew small quantities of beer and stout

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for personal use from the licensing requirement. After having implemented the scheme for four years, we note that hobbyists behave responsibly and thus there is no need to subject them to licensing. In addition, we would also seek to exempt by category or activity so as to avoid uneven treatment within a particular category or activity.

Next, on clause 5, on the issuance of Customs Rulings; this issuance is really to facilitate trade so as to provide more certainty and predictability for the trade operators. The service standard for issuance of rulings will be published on the Customs website and the Member's suggestions as well as suggestions from the trading community will be taken into consideration. Having said that, we are conscious that we have to avoid being too rigid in terms of stipulating the service standard for the rulings in the Act as Customs will review and improve the process on a continual basis.

On the related point in clause 14, whereby the Director-General will be allowed to modify or withdraw the ruling, this is not intended to restrict the usefulness of the ruling for the business community but rather to cater to situations whereby the ruling has to be modified or withdrawn due to a change in circumstances. Let me illustrate with an example. A change in the duty status of a product, eg, from dutiable to non-dutiable, may render the previous ruling irrelevant or inappropriate and, therefore, it would have to be modified or withdrawn. The Member's points are certainly well taken and Customs will continue to strike a balance.

Moving on to his other points about the areas that have not been proposed for amendments, on the issue of refunds, as a matter of principle, the Government pays or will pay interest for refunds to the public due to wrongful deductions. This instruction is captured in the Government

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Instruction Manuals issued by the MOF and applies to all public agencies. The sole aim is to encourage revenue collections to be more accurate and for refunds to be made on a more prompt basis. However, refunds with no interest will be made for overpayments or erroneous payments made by the public on their own accord.

On the Member's comment on section 21, the current regime provides certainty and consistency by generally valuing the good and applying the appropriate duty rate at the time of importation. This is a common practice adopted by most customs administrations. If the trader chooses to bond the good into a licensed warehouse so that the duty is suspended until the point of consumption, then the application of valuation and duty rate will be at the time when the good is actually released. If I may also clarify, calculation of duty does not include domestic charges, such as storage and handling.

As for the comments on transfer pricing adjustments, the Member is accurate in his observation. This is a challenge and an issue faced by customs administrations worldwide, and Singapore Customs would like to encourage companies to come forward with such issues so that solutions can be worked out for proper customs declarations to be made. In this matter, we would certainly welcome feedback and suggestions as well.

On the import valuation mechanism, due to the different nature of customs or excise duties and GST, there is no intention to align the import valuation mechanisms for dutiable and non-dutiable goods under the two different Acts, the Customs and the GST Acts respectively. If I may just quickly explain. Under the WTO Valuation Agreement, the transaction price, which is normally the cost, insurance and freight value, is used as the basis for valuation for dutiable goods on

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importation as part of the customs and excise duties regime. For the GST, valuation of non-dutiable goods for GST purposes will take its reference from the last selling price if there is a supply. This is because the GST is a value-added tax levied on both the import and supply stages. So, when there is no supply, the valuation basis is actually the same, and the numbers would be the same. So, the two mechanisms are actually not inconsistent.

If I may just summarise, we will continue to review the issues raised by the Member and update the Customs Act as and when business changes so dictate.

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.

Mrs Lim Hwee Hua:

The Chairman: The citation year "2007" will be changed to "2008", as indicated in the Order Paper Supplement.

Clauses 1 to 16 inclusive ordered to stand part of the Bill.

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