List of non-taxable govt services to be published after $7.5m in GST wrongly collected

Source: Straits Times
Article Date: 03 Apr 2024
Author: Jean Iau

GST charged on the affected transactions ranged from below $1 to about $1,500.

A list of government services for which goods and services tax (GST) will not be charged will be published in end-April to prevent the recurrence of GST being wrongly collected for regulatory services, Second Minister for Finance Chee Hong Tat told Parliament on April 2.

The Ministry of Finance (MOF) and the Inland Revenue Authority of Singapore will now also work closely with government agencies to assess their fees for GST collection, instead of leaving it to agencies to decide, he added.

The amendments to Singapore’s GST law will result in GST being collected for over 100 government services where GST is currently not charged. These include examination and inspection-related fees.

During the parliamentary debate, Mr Chee said the amendments make clear the Government’s policy intent for GST. Its approach is that regulatory fees imposed for the purposes of control and regulation should not be subject to the tax, he said.

These include applications for and renewals of professional licences as they confer on applicants the right to practise in the regulated profession.

In contrast, fees for providing services, such as the rental of public sports facilities, should be subject to GST.

“This approach ensures parity in tax treatment, where services that can potentially be provided by, or outsourced to, the private or non-government sector are subject to GST,” said Mr Chee, who is also Transport Minister. “Some countries which levy GST also adopt similar principles.”

Mr Chee noted that some agencies have been charging GST on fees for exams a person has to take before being licensed to practise in certain regulated industries. But other agencies have not, due to differing interpretations of the GST Act.

Based on the Government’s clarified policy intent, such exam fees should attract GST, and only the eventual licence fee granting approval to practise should not be taxable, he said.

To reduce the impact on the public, the Government will impose a freeze on these fees and absorb their GST until the end of 2025.

“Hence, all affected fees will not increase immediately as a result of the amendments,” said Mr Chee. MOF has also asked the agencies involved to review these fees and charges, and consider ways to streamline processes or reduce costs.

The amendment to the GST law came after the Government discovered mistakes in GST collection during an internal review by MOF in November 2023, when it looked at how the tax was charged for government services.

On Feb 14, the Government said at least $7.5 million in GST had been wrongly collected on regulatory services that had been incorrectly deemed to be processing fees by six public agencies.

The agencies were the Council for Estate Agencies, the Housing Board, the Land Transport Authority, the Singapore Food Agency, the Urban Redevelopment Authority and the Office of the Public Guardian, which comes under the Ministry of Social and Family Development.

As a result of the misclassification, GST was collected when people and businesses paid fees for 18 services, such as renewing real estate agent licences, applying to operate a food-processing company, registering a lasting power of attorney, and renting out an HDB flat or bedroom, among other things.

It apologised and said it would refund taxpayers the GST on such fees, with interest.

When the list is published in end-April – which is when the amendments take effect – all government fees that are not prescribed will be subject to GST, Mr Chee said on April 2.

Meanwhile, MOF is in the midst of reviewing with agencies more than 1,700 regulatory and ancillary fees for which GST is currently not charged.

Mr Chee said the ministry will progressively prescribe these fees in the non-taxable list, with the task expected to be completed by September 2024.

By centralising assessment and publishing a list of non-taxable fees, there will be “greater clarity and certainty to everyone on GST treatment for government fees”, he added.