Goods and Services Tax (Amendment) Bill
(6 min) Mr Louis Ng Kok Kwang (Nee Soon): Sir, this Bill will strengthen safeguards of public monies and Singapore’s national interests.
It is more crucial now than ever in the existing financial climate to ensure that tax revenue is protected from fraud or loopholes. In doing so, this Bill draws lessons and references from similar provisions in other jurisdictions, such as the UK and Australia.
I support this Bill, which will improve GST administration and enhance the Comptroller’s powers to safeguard public monies, investigate tax offences and counter GST fraud. That said, I have four points of clarification on this Bill.
First, I would like to clarify how we are supporting SMEs’ compliance with due diligence requirements. The amendments to section 20 require businesses to undertake due diligence checks to avoid being involved in a fraud that they “should have known”. I understand the need for businesses to step up and take reasonable steps against fraud. However, big businesses and small businesses have different resources and capacity to conduct checks. What is a reasonable step for a big business and a small business may not be the same. Can Minister clarify how it will ensure that such requirements do not constitute an onerous burden to our SMEs? I am aware that the Minister plans to provide guidance for businesses on what constitutes “reasonable steps” in section 20. Beyond that, can the Ministry share whether it will offer training and industry-specific resources to ensure small businesses can still effectively conduct their due diligence checks?
My second point of clarification is on the Comptroller’s review process when investigating fraudulent arrangements. A company involved in fraudulent arrangements could face the severe penalty of deregistration. Can the Minister clarify the key considerations the Comptroller will take into account when evaluating a company’s involvement in fraud? For example, in the UK, adequate and timely checks by the company to ensure the integrity of its supply chain will be viewed favourably.
Providing these key considerations will be useful in guiding honest businesses in their due diligence checks so as to mitigate risks of an unwitting involvement in fraud. Because the level of checks expected for business sectors that are commercially risky or vulnerable to fraud and other criminality is higher, can I propose that the Minister identifies these sectors so businesses know to step up their due diligence checks and also share a separate set of key considerations businesses in these sectors can align to?
Given that we also expect more intensive checks for industries more susceptible to fraud and criminal activities, can the Minister identify such industries and share additional guidelines specific to these industries? After all, if we are going to ask more of certain businesses, it will help if we can also provide more support for their compliance. Can I also request the Minister to then share and incorporate these guidelines in the IRAS e-Tax Guide so businesses are able to access this information easily?
My third point of clarification is on the documentation businesses are expected to maintain as part of their due diligence checks. Can the Minister clarify in regulations or codes the methods and level of detail of documentation businesses are expected to maintain to be deemed to have taken “reasonable steps to ascertain whether the supply was part of a fraudulent arrangement”?
Can the Minister also clarify for how long businesses are expected to retain these documentations, given that the timeframe for the Comptroller to determine if a supply is part of a Missing Trader Fraud is open-ended? We want to avoid the situation where honest businesses do their due diligence checks but cannot back it up because they discarded or deleted supporting documents after a period of time. We also want to avoid the situation where fraudulent businesses can realistically claim to have discarded supporting documents even when no such checks were done.
My final point is a proposal for an anonymous reporting channel for whistleblowers. The Association of Certified Fraud Examiners 2018 report revealed that tips are consistently and, by far, the most common detection method for fraud. Fifty percent of the cases are detected through tips. Businesses or individuals may, in the course of their due diligence checks, come across potentially fraudulent suppliers or entities. We must make sure businesses or individuals feel safe coming forward.
Currently, it is unclear the parties who will be privy to the tip beyond the generic email provided at ifd@iras.gov.sg on IRAS' “Report Tax Evasion” website. This should be made clear to whistleblowers. And if these parties are the very target of the tip, there should be an alternate reporting channel whistleblowers can turn to. Can the Minister clarify the parties that are privy to the tips sent to the IRAS email address mentioned and whether there are alternate reporting channels for whistleblowers to report suspicious or fraudulent arrangements that are potentially related to these very officers? Can Minister confirm that this information will be reflected on IRAS’ “Report Tax Evasion” website so whistleblowers are aware of their options?
Sir, notwithstanding these clarifications, I stand in support of this Bill.
Response from Mr Lawrence Wong: Mr Speaker, let me thank Mr Louis Chua and Mr Louis Ng who have spoken in support of the Bill and the need to safeguard our GST base. Let me respond to some of their comments and suggestions.
Mr Louis Chua asked about the extent of missing trader fraud in Singapore. As at 31 December 2019, more than 300 GST-registered businesses audited have been suspected to be involved in missing trader fraud in Singapore. The total GST involved is about $450 million. Now, of these 300 GST-registered businesses, IRAS has completed its audit and investigation for about 70 businesses and the GST involved amongst these businesses is about $90 million in GST. So, those have been completed. The remaining businesses are still under investigation. So, the GST at risk of loss for this category is the remaining, that is, $450 million minus $90 million, so, it is $360 million. That is where we stand today. It is not at the same scale as the EU, but we see the trends internationally. We are concerned and that is why we are putting in place these measures and I am very happy that Mr Louis Chua also supports them.
Second, Mr Louis Chua also mentioned the possibility of doing an e-commerce tax and I am very happy that he supports this, too, because we will certainly look for ways to raise more revenues. We have already moved on GST for imported services and we will be looking at the GST for imported goods, too. So, that is something on our minds. This is something that is quite complex because the way to go about doing this, obviously, is to tax at source, right? When you buy something from an e-commerce platform, impose the GST at source and then you can ensure that GST applies even for e-commerce transactions. But if countries do not all impose such a tax, it is quite easy to circumvent. You can imagine shipments being sent to different countries in order to bypass. So, there are some complexities around this but we are studying this very carefully with a view towards putting in place a proper regime to ensure that the e-commerce transactions are also subject to GST. We will be updating the House in due course when we are ready with this.
Next, Mr Louis Chua and Mr Louis Ng both highlighted concerns about the compliance burden that would be imposed on SMEs and we are equally concerned. So, let me share some of the ways in which we are intending to deal with this.
With regard to, for example, guidance to SMEs on the due diligence checks that they have to make, how can we provide more clarity? Today, IRAS already provides and makes available such guidance, and it will continue to educate taxpayers on the kinds of due diligence checks that are necessary. Besides providing ready information on its website and through the media, IRAS has been engaging industry associations and tax intermediaries to raise industry awareness. Newly GST-registered businesses can also access e-learning and other resources on IRAS' website, so that all these will help them to understand and better comply with the GST obligations.
As is the case with previous legislative updates, IRAS will publish an e-tax guide soon after the Bill comes into force and this will provide businesses with the latest guidance. The e-tax guide will highlight examples of risk indicators that a business ought to take notice of in relation to a supply that might be part of a missing trader fraud arrangement. So, hopefully, SMEs will start to be more aware of what they should be looking out for and we will also provide some illustrations of the due diligence checks that businesses should take in response to the risk identified. And the Comptroller of GST will take into account all the facts and circumstances of each case, including the firm's circumstances as an SME, where relevant, in considering what is reasonable.
IRAS will also work with interested industry associations to conduct dedicated outreach sessions and businesses may contact IRAS if they require further information.
Mr Louis Ng sought clarification on how the Comptroller of GST will assess whether a GST-registered business knew or should have known that its purchase was part of a fraudulent arrangement. The Comptroller's assessment depends on the facts and circumstances of each case and will include taking into account all the relevant considerations, like whether due diligence and risk assessment checks were performed by the business, what were the results of these checks, to what extent were the checks appropriate, adequate and timely to address the risks identified and whether the taxable person took appropriate action in response to the results of these checks.
Under the proposed arrangement, the burden of proving that the GST-registered business knew or should have known of the fraudulent arrangement lies on the Comptroller, based on the balance of probabilities. And businesses that disagree with the Comptroller's decision may apply for review and revision of the decision under section 49 of the GST Act. And if businesses disagree with the Comptroller's review and revision of the decision, they then may appeal further to the GST Board of Review. And, again, if they are dissatisfied with the decision of the Board, they can appeal to the High Court.
Mr Louis Ng asked for the level of detail and duration that GST-registered businesses must maintain the documents or the records of reasonable steps that they have taken to determine whether a supply made to them was part of a fraudulent arrangement. So, on record-keeping of documents, what constitutes reasonable steps?
As advised on IRAS' website, businesses today must already keep proper records and accounts of business transactions. This includes retaining the source documents, accounting records and schedules, bank statements and any other records of transactions connected with the business. Business should, generally, maintain records of the steps taken to ascertain whether the supply made to or by the business was likely to be a part of a fraudulent arrangement and this includes documents detailing the risks assessed, the due diligence checks that were performed and the actions and precautions taken in response to the results surfacing from these checks. This information should be made available upon request by IRAS to ensure there is proper accountability for decisions made. Again, IRAS will make all this information available in its e-tax guide.
On the duration of how long the record should be maintained, under the GST Act, GST-registered businesses are required to keep the records for a period of five years from the end of their prescribed accounting periods.
Finally, there was a suggestion from Mr Ng about an alternate anonymous channel for whistleblowers, particularly if they wish to report IRAS officers themselves who are involved in a fraudulent arrangement. As Mr Ng highlighted, IRAS' Investigation and Forensics Division maintains a mailbox that businesses or individuals may utilise to notify IRAS of any possible case of tax evasion or tax avoidance. This information including examples of signs of tax evasion and information that may be useful to IRAS is published on IRAS's website. IRAS takes every report of tax evasion seriously, and if the whistleblowing relates to an IRAS officer or a staff of IRAS' vendors, the whistleblower can write directly to the Director of IRAS' internal audit branch. We wish to assure Mr Ng that the whistleblower's identity and all information and documents provided would be kept confidential and subject to an independent evaluation within IRAS. Alternatively, if the whistleblower suspects that an IRAS officer is involved in a corrupt act, the whistleblower may lodge a complaint with the CPIB.
Mr Speaker, to conclude, the proposed amendments to counter Missing Trader Fraud are necessary to safeguard public monies. It is critical that all GST-registered businesses undertake adequate and appropriate due diligence checks as well as precautions to avoid being involved in a fraudulent arrangement. These are critical steps that we will need to safeguard and preserve our revenue base. Mr Speaker, I beg to move.
Source: Hansard
