GOODS AND SERVICES TAX (AMENDMENT) BILL

Column No : 3218

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

5.38 pm

The Second Minister for Finance (Mr Lim Hng Kiang): Mdm Deputy Speaker, I beg to move, "That the Bill be now read a Second time."

The Bill will amend the Goods and Services Tax Act to give legislative effect to the following four measures:

(i) to zero-rate trust administration services provided by a trust company to a foreign trust of which it is not the trustee;

(ii) to provide for the Approved Third Party Logistics Company Scheme;

(iii) to make Government goods and non-regulatory services, which can be potentially provided by the private sector, taxable; and

(iv) to remove the requirement for GST-registered businesses to seek the Comptroller's prior approval for electronic invoicing.

Madam, I shall now explain the amendments in the Bill that relate to changes announced in Budget 2003.

The first change is the zero-rating of trust administration services. The zero-rating provision in respect of trustee services shall be extended to services provided by a Singapore trust company to a foreign trust of which it is not the trustee. This will increase the competitiveness of Singapore trust companies serving as management and administration hubs for offshore trusts. Clause 4 amends section 21 of the Act such that trust administration services provided to a foreign trust by a person other than the actual trustee can be zero-rated.

The first change is the Approved Third Party Logistics Company Scheme. Third party logistics companies generally undertake vendor-managed inventory operations where they import and hold goods belonging to foreign principals for local delivery.

A new scheme whereby qualifying companies can import goods belonging to them or foreign principals without payment of GST shall be introduced. Under this scheme, qualifying companies can also move goods to their customers who are under the Major Exporter Scheme or other qualifying companies under the same scheme, without charging GST. Clause 5 re-enacts section 27 of the Act to allow the Minister to make regulations to give effect to the Approved Third Party Logistics Company Scheme.

The third change is making Government goods and non-regulatory services taxable. Under the current legislation, supplies provided by the Government are only subject to GST if there are similar supplies made by the private sector. However, the taxability of supplies should be based on the nature of supplies rather than the legal identity of the suppliers. To rationalise this treatment, GST will be levied on all Government goods and non-regulatory services that can be potentially provided by the private sector, whether or not it is actually already being provided by the private sector.

Hence, clause 6 amends section 28 of the Act to levy GST on all non-regulatory Government supplies, except supplies the Minister may prescribe. The Government will not increase any fees and charges on account of the change in GST treatment of Government supplies. Instead, the price of the services provided at the time this amendment comes into effect will be deemed as being inclusive of the GST.

The fourth change is the removal of the requirement to seek Comptroller's approval for electronic invoicing. Currently, GST-registered businesses that wish to issue, transmit or receive tax invoices electronically are required under the Act to seek prior approval from the Comptroller. Clause 7 amends section 43 of the Act to remove the requirement to seek the Comptroller's prior approval for electronic invoicing. This will ease compliance for businesses.

Madam, I beg to move.

Question proposed.

Mr Chiam See Tong: Madam, first, may I be allowed to make comments on the GST? In principle, I do not support the GST in these difficult economic times. Despite the various rebates given to HDB flat dwellers, GST is still causing unnecessary hardship on the people. I support those who have called for the delay of the additional increase of 1% in addition to the 4% GST by at least six months from 1st January 2004. The delay will go a long way to help the poor tide over the current economic difficulties, and also encourage spending which may help to bring some life to the slow retail businesses.

We all know that GST increases prices, in particular, in Singapore today. We are concerned with any increase in retail prices. Retailers are crying out for help, especially those in the HDB heartlands. As politicians, we should do something to help them. What we can do is to try to stop the further increase of GST. I therefore call on the Government to delay the implementation of the 1% on GST which takes effect from 1st January next year.

As regards the Bill itself, I would like to comment only on clause 5 in respect of section 27 which empowers the Minister to make regulations to allow certain taxable persons in the cause of furtherance of any business to import goods without payment of tax. I wish to ask the Minister whether this section of the Act, soon to be enacted, can be a loophole or can be abused by poor implementation of regulations in regard to the collection of GST. We have all read in the recent Slim 10 case whereby Government authorities appeared to allow one batch of slimming drugs to pass through without problems but failed to check on the other poisonous batches which gave rise to lengthy litigation in the court.

Similarly, as regards this new section 27,

will there be stringent procedures to prevent abuse whereby merchants can avoid payment of the 4%, and soon 5%, GST on the goods they import for local use? Can the Minister give us an assurance? Otherwise, there will be unfair advantage to those who can avoid payment of GST due to the said loophole in the Act.

Mr Lim Hng Kiang: Mdm Deputy Speaker, I think we have been through this debate about the GST several times. I wish to reiterate the arguments. First, the reason why the Singapore economy is facing its current difficulties is that our competitiveness level has dropped. To overcome this competitiveness problem, we need to restructure. And part of the restructuring exercise requires us to lower income tax and we need to then balance this by raising the GST from 3% to 5%. To make sure that the GST increase will not cause hardship to Singaporeans, we have put in place a comprehensive range of support mechanisms, from the Economic Restructuring Shares, the second tranche of which will be issued starting in January 2004, to a whole range of rebates to Singaporeans.

We have stated many times, and shown many times, that the rebates that Singaporeans receive and the assistance that Singaporeans receive will pay for at least five years of their GST commitments. Just a simple example, a household with an income of $1,500. Even if they spend all the money and incur the extra 1% GST, the additional GST is $210, but the ERS would give them at least $400 for one adult - if there are two adults in the family, it would be doubled - plus all the rebates for the service and conservancy charges, and if they are in rental flats, the rental rebates. So we have demonstrated many times that this is the right way to help Singaporeans, not to delay the GST. We have proven this the first time we raised the GST by 3%, that inflation impact is very minimal, that the rebate scheme that we have is the right way to help Singaporeans.

On Mr Chiam's point about the logistics scheme, there are two specific schemes to help develop Singapore as a global integrated logistics hub. The first scheme, as I mentioned in the Second Reading speech, is the third party logistics scheme. This is to allow such companies which meet these criteria to apply to IRAS. And if their applications are approved, then they would not have to pay the GST. The second scheme is the Major Exporter Scheme, and that will also allow them to qualify. So there will be stringent controls and criteria before the companies can qualify. I assure Mr Chiam that these schemes will not present a loophole for people to escape the GST.

Mr Chiam See Tong: Madam, the GST obviously is causing hardship to many residents in HDB heartland. In our Town Council, the arrears of three to six months ---

Mdm Deputy Speaker: Order. Mr Chiam, I have allowed the Minister to address your concerns on the general comments, and that is not the substance of this Bill. If your clarification pertains to the substance of this Bill, I will allow that. Otherwise we will not debate the GST policy. Do you have any clarification?

Mr Chiam See Tong: I want to clarify that, in fact, the GST is causing hardship to the residents in HDB heartland.

Mdm Deputy Speaker: Yes, I think the Minister had addressed that, even though that is not the substance of this Bill.

Mr Chiam See Tong: Thank you.

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. - [Mr Lim Hng Kiang].

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