Reasons for Wrong Charging of GST by Government Agencies and Review of Processes to Prevent Recurrence

Dr Tan Wu Meng asked the Deputy Prime Minister and Minister for Finance (a) what are the root causes for the wrong charging of GST on the 18 Government fees which were incorrectly designated as processing fees rather than regulatory in nature prior to the November 2023 review; (b) whether the Ministry maintains an overview of such fees; (c) whether the Ministry previously provided specific guidance to agencies on such interpretations; and (d) whether there have been prior appeals or legal challenges to the interpretation of fees and, if so, what are the outcomes.

Thank you. Sir, Government fees may be regulatory or non-regulatory in nature. Fees imposed for purposes of control and regulation are regulatory in nature, and the Goods and Services Tax (GST) should not be charged; whereas fees for the provision of services such as the use of public sports facilities or rental of hawker stalls and exhibition spaces are non-regulatory in nature and GST applies in such cases.

Each Government agency, like any GST-registered business, has to assess whether its fees should be GST-chargeable whenever a fee is introduced or revised. Agencies do so based on the law. The Ministry of Finance (MOF) and Inland Revenue of Authority of Singapore (IRAS) also provide guidance to agencies on what constitutes regulatory fees.

Members asked how the issue was identified. It was picked up by MOF and IRAS as part of our regular internal review of the GST regime. We discovered inconsistencies in the application of GST on certain Government fees in November 2023 and concluded the review in January 2024, with 18 regulatory fees identified to have charged GST wrongly and need to be refunded.

As most of these 18 fees are for the processing of applications, rather than licence fees, agencies had deemed them to be taxable provisions of services. For example, an agency had charged GST on the application fee for a licence but had not charged GST on the licence itself. The correct treatment should have been to not charge GST on both the application fee and licence fee.

Businesses or individuals who wish to appeal against the GST treatment for any Government fee can lodge an objection with the Comptroller of GST or an appeal with the GST Board of Review. To date, there have been no cases relating to Government regulatory fees.

Sir, we have put out the facts and the remedial actions that will be taken. As announced on 14 February, the agencies involved have ceased charging GST on the 18 fees and will refund all affected taxpayers with interest of 5.5% per annum.

The refund will minimally cover transactions since 1 January 2019 as the agencies, as GST-registered entities, are required by law to keep records for five years. Where records and updated banking details are available, agencies will proactively and automatically credit the refunds to individuals and affected businesses. Otherwise, agencies will contact taxpayers to provide or update such information before refunds are effected. If affected taxpayers are not contacted by agencies by 30 June 2024, they can reach out to the agencies to seek a refund. In cases where the affected company has been dissolved or the individual is deceased, agencies will make refunds to the Official Receiver and the executor, administrator, or Public Trustee respectively.

The agencies should be able to refund the vast majority of the affected taxpayers. But if there are any unrefunded amounts, then they will be considered part of the Government’s GST collections and broader tax revenue used for nation building purposes.

Mr Yip Hon Weng, Mr Huang and Mr Leong Mun Wai asked how the Government will guard against future recurrence, for example, by leveraging on technology. As the issue did not arise from a lack of technology but from differences in the interpretation of law, we will simplify and clarify the rules and processes to provide greater clarity on regulatory fees where GST should not be charged. MOF will table a Bill soon to amend the GST Act to clarify the GST treatment for such fees, and to prescribe a list of regulatory fees where GST should not be charged. This will make clear which fees are regulatory in nature. This approach will also help to address any cases where GST should have been applied, but agencies failed to do so.

Mr Leong suggested to exempt all Government fees and charges from GST. As mentioned earlier, there are fees that are charged for the provision of services, like public sports facilities. Some of these services could well have been outsourced to private sector providers, or there may be businesses providing similar services. GST should therefore be applied consistently to such services, regardless of whether the entity providing the service is from the public or private sector, so that there is parity in tax treatment. Other countries with GST systems also adopt similar principles.

Sir, the Government is committed to upholding high standards of governance and integrity. We will continually review and improve our processes, and where feasible, we will incorporate the suggestions from hon Members.

Thank you, Mr Speaker. I thank the Minister for his response. I have two supplementary questions. How will this incident inform future internal audit processes by the Government of similar fees and charges? Secondly, what is the assessment of the potential impact of this error on public trust in Government financial management, and what steps will be taken to rebuild trust and prevent similar issues from happening in the future?

Mr Speaker, to Mr Yip's first question, we are going to table a Bill in Parliament soon to amend the GST Act. As I explained in my main reply, we will prescribe a list of the regulatory fees where GST should not be charged. I think this will provide clarity and take away the uncertainty for all stakeholders, whether is it the agencies or public officers who are involved in administering these fees, or taxpayers, because there is a prescribed list of such fees where GST should not be charged.

Sir, I also want to highlight that we take this issue of integrity and governance very seriously. That is why when MOF and IRAS came across the inconsistencies in November last year, we did a thorough review of all the regulatory fees and charges. By January, we completed the review and we identified that there are 18 fees altogether that would need to be rectified and the GST that is wrongly collected, will have to be refunded to taxpayers. I think this is the approach that we will take. It does not mean that we do not make mistakes, but when we discover that mistakes are made, we will be upfront, we will be open and we will deal with those mistakes. We will rectify the errors and we will make good.

Sir, just two questions for the Minister. First, could the Minister clarify – why was this not spotted by the Auditor-General over the past years when they audited the Government processes and accounts?

Second, the Minister said that the refund would be made together with interest at 5.5% per annum. Could I ask the Minister how does the Ministry compute the interest payable on the GST that was collected erroneously? Previously, when I wrote to Government to ask about how interest was charged, the Government told me that MOF has a policy of charging 8.1% on interest for refunds, when residents could not pay back the Ministry, whereas the Government is refunding at 5.5%. So, how does the Ministry determine this interest payable?

Mr Speaker, I believe Mr Lim will agree with me that the Auditor-General's Office (AGO) is an independent statutory organisation, so, I cannot answer on behalf of AGO. But I believe AGO has put out its explanations as well, on this matter.

The second question about interest rates, the rate of 5.5% was set referencing the prevailing interest rate for Government refunds over the affected period and that is the average prime lending rate, compiled by the Monetary Authority of Singapore (MAS) from leading banks and licensed companies. Sir, I cannot comment on the earlier figure that Mr Lim cited. Maybe he could forward to me more information and we will look into that.