Wrongful GST Charges by Government Agencies

Mr Shawn Huang Wei Zhong asked the Deputy Prime Minister and Minister for Finance (a) how will the wrongful GST charged by Government agencies impact the affected individuals and businesses; (b) whether there is any compensation beyond the refund for any inconvenience caused; and (c) whether the Ministry will review the use of relevant technologies to avoid future GST discrepancies.

My response will cover Oral Questions 2 and 3 and Written Questions 2 and 3 on today's Order Paper, as well as related questions by Mr Don Wee, Ms Joan Pereira and Mr Leong Mun Wai for subsequent Sittings. [Please refer to "Reasons for Wrong Charging of GST by Government Agencies and Review of Processes to Prevent Recurrence", Official Report, 26 February 2024, Vol 95, Issue 124, Oral Answers to Questions section.]

Government fees may be regulatory or non-regulatory in nature. Fees imposed for purposes of control and regulation are regulatory in nature, and 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. MOF and 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.

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 5 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.

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 Members.