Singapore to amend GST Act after Govt agencies’ errors in fee charges

SINGAPORE: The Ministry of Finance (MOF) of Singapore will soon introduce a bill to amend the GST Act, aiming to provide clarity on the treatment of Goods and Services Tax (GST) for various fees and specify regulatory fees exempt from GST,  said Transport Minister and Second Minister for Finance Chee Hong Tat.

This initiative comes after MOF’s recent disclosure that six government agencies erroneously applied GST to 18 fees for regulatory services, ranging from professional license application fees to administrative charges for public flat rentals.

Addressing Parliamentary questions (PQs) during a session on Monday (26 February), Minister Chee outlined plans to simplify and clarify rules and processes to identify regulatory fees exempt from GST, aiming to rectify past discrepancies where GST should have been omitted but was not applied by agencies.

“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 Yip Hon Weng, PAP MP for Yio Chu Kang SMC, Dr Tan Wu Meng and Shawn Huang, both MPs for Jurong GRC, and Mr Leong Mun Wai, Non-constituency Member of Parliament (NCMP) from the Progress Singapore Party (PSP), raised concerns regarding the computation of interest on erroneously collected GST and questioned the impact on future internal audit processes, steps to rebuild public trust, and preventive measures.

Minister Chee clarified that the issue of wrongly charged GST on certain Government fees was identified through regular internal reviews conducted by the MOF and the Inland Revenue Authority of Singapore (IRAS).

Inconsistencies were discovered in the application of GST on certain Government fees in November 2023, and the review concluded in January 2024, identifying 18 regulatory fees that had incorrectly charged GST.

S$7.5 million in overcharged fees over 5 years

Minister Chee explained that government fees may be regulatory or non-regulatory in nature, and the correct application of GST depends on the nature of the fee.

The six government agencies involved in the GST erroneous charges, namely the Housing and Development Board (HDB), Land Transport Authority (LTA), Urban Redevelopment Authority (URA), Singapore Food Agency, Office of the Public Guardian, and Council for Estate Agencies.

Among these, HDB accounted for over 70 per cent of the 200,000 annual erroneous charges.

The total amount of wrongly charged GST over the past five years amounts to a minimum of S$7.5 million.

Minister Chee highlighted that the issue arose as agencies incorrectly considered certain fees, meant for processing applications, as taxable provisions of services.

Despite the errors, he reassured the commitment to a seamless refund process for affected individuals and businesses, with eligibility extending to individuals and non-GST-registered entities, totaling approximately S$1.5 million annually.

“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. ”

“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.”

Mr Chee added that if agencies do not contact affected taxpayers by 30 June 2024, they can reach out to the agencies to seek a refund.

The fixed interest rate of 5.5% per annum, based on the average prime lending rate compiled by the Monetary Authority of Singapore, was clarified by Chee to reflect current economic conditions.

In addressing the origin of the issue, Mr Chee emphasized that it stemmed from differences in interpreting the law rather than technological inadequacies.

To prevent future occurrences, he said the government intends to table a Bill to amend the GST Act, clarifying the treatment of specific fees and outlining regulatory fees exempt from GST.

In response to NCMP Leong’s proposal to exempt all Government fees and charges from GST, Mr Chee explained that certain fees are associated with service provision, such as 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.  ”

Each of the six government agencies has outlined specific refund processes to facilitate seamless reimbursement:

1. Housing and Development Board (HDB): HDB erroneously charged GST on administrative fees for renting out public flats and compulsory acquisition of flats. Starting mid-March, around 50,000 affected households will receive notifications via the Singpass app and hardcopy letters. Refunds will be credited directly to bank accounts, with proactive measures in place for transactions beyond five years.
2. Land Transport Authority (LTA): LTA mistakenly collected GST on nine fees, including license amendments and application fees. Automatic refunds will be processed progressively from 1 March to 30 June 2024, with notifications sent via e-notifications, SMSes, or hardcopy letters.
3. Urban Redevelopment Authority (URA): URA levied GST on processing fees for development applications and lodgments. The refund exercise will occur in two phases, with proactive outreach to applicants from 1 March to 30 June 2024. Applicants for transactions predating January 1, 2019, can apply for refunds from July 1 onwards.
4. Office of the Public Guardian: The office wrongly charged GST on Lasting Power of Attorney (LPA) and professional deputy applications. The refund process begins in March, with progressive outreach to affected individuals. Refunds will be facilitated via PayNow or bank transfer, ensuring efficient reimbursement.
5. Singapore Food Agency (SFA): SFA erroneously charged GST on three license application fees. Proactive outreach will target affected businesses from 1 January 2019, onwards, with inquiries for transactions predating 2019 accepted until the end of December.
6. Council for Estate Agencies (CEA): CEA misclassified application fees for real estate agency licenses and registration of real estate salespersons. Refunds to eligible non-GST registered businesses will commence in mid-March, with declarations required for processing refunds to real estate salespersons from June 2024.