SINGAPORE - At least $7.5 million in goods and services tax (GST) has been wrongly collected on fees for 18 government services and will be refunded to affected taxpayers, the Government said on Feb 14, apologising for the error.

The fees for 18 regulatory services were wrongly deemed to be processing fees by six agencies – the Council for Estate Agencies, the Housing Board, Land Transport Authority (LTA), Singapore Food Agency, Urban Redevelopment Authority (URA), and 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 the 18 services, such as to renew their real estate agent licences, apply to operate a food processing company, register a Lasting Power of Attorney, or rent out an HDB flat or bedroom, among other things.

The agencies have taken immediate steps to stop charging GST on the fees as of Feb 14, and will start contacting affected taxpayers from March, the Ministry of Finance (MOF) said in a statement.

The refunds will be paid along with 5.5 per cent interest per year.

“MOF and the six agencies apologise for the erroneous charging of GST. All agencies have taken immediate steps to cease the charging of GST on the affected fees from today,” said MOF Second Permanent Secretary Lai Wei Lin.

“The Government will refund affected taxpayers the GST charged for the fees, and we will make the refund process as seamless as possible.”

The mistake was first discovered in an internal review by the ministry in November 2023, when it looked at how GST was charged on government fees and charges.

MOF concluded the review in January 2024.

According to Singapore’s goods and services tax system, GST should not be charged on fees for regulatory services, which are the kind of services that require a government agency to determine if a business or person is eligible to engage in various activities based on official rules or laws.

In this case, the fees for the services were wrongly deemed by the agencies to be processing fees.

For instance, an agency had charged GST on the application fee for a licence, but not on the licence itself, even though it should not have charged GST on either the application fee or the licence.

GST is charged on government services such as the use of public sports facilities or rental fees for hawker stalls.

MOF said the agencies, as with all GST-registered entities, are required by law to keep records for up to five years, and therefore have records of the affected transactions from Jan 1, 2019.

The Straits Times has asked when these fees were implemented, and for how long the erroneous collections have been going on.

Beyond the five-year period, agencies will make proactive refunds where records are available, said MOF. Affected taxpayers can approach the agencies to seek a refund if they are not contacted by June 30.

The 18 fees in question represent less than 0.5 per cent of the total number of government fees, said MOF. Of these, HDB fees accounted for more than 70 per cent of the 200,000 affected transactions each year, with the majority of the fees between $1 and $2.

GST charged on the affected transactions ranged from below $1 to about $1,500. About 90 per cent of all the erroneous GST was charged to individuals, and 10 per cent to businesses.

MOF said the GST-registered entities among the group would have claimed input tax for the GST that they had paid out, and thus would already have got back the money. Input tax is tax incurred for business purposes.

The $1.5 million collected in error each year from Jan 1, 2019, does not include the amounts already returned via input tax.

To prevent such errors in future, MOF will be making changes to the GST Act to prescribe a list of regulatory fees where GST should not be charged. The legislative amendments are to be tabled in the coming months.

The current approach is for government agencies to assess and decide whether or not to impose GST on their fees based on broad principles and guidelines set out by MOF.

MOF said: “There are more than 5,000 government fees and charges, and this approach can result in mistakes by agencies – be it to wrongly charge GST, or even to miss out on applying GST.”

Mr Koh Soo How, a partner specialising in indirect taxes at business advisory firm Grant Thornton Singapore, said it is not always straightforward to determine if the processing fees associated with a regulatory service should be considered regulatory or administrative in nature.

“That distinction can be challenging and adds complexity to the analysis of the fees from a GST perspective,” he said.

That MOF is looking to clarify the rules will help limit the need for discretionary tax decisions by government agencies, he added.

As to why the mistakes were not discovered in annual statutory audits, Mr Koh said GST is typically not within the scope of such audits as whatever is collected is accounted for directly to the Inland Revenue Authority of Singapore.

This means that the accounts being audited will not include GST numbers, and that errors or gaps in GST reporting are typically discovered only through a special review or audit of a specific area of GST, as was the case with MOF’s November 2023 review.

Agencies to refund money, amend fees in question to remove GST

HDB said in a statement on Feb 14 that it had charged GST wrongly when people applied to rent out their HDB flats and bedrooms, and when flats were acquired compulsorily due to infringements of the law.

On average, the GST charged in error amounted to about $1 for each application to rent out flats or bedrooms, and $15 for compulsory acquisitions.

HDB said it will reach out to some 50,000 affected taxpayers from mid-March based on available records. Affected taxpayers not contacted by June 30 can submit a refund request via the HDB InfoWeb by Dec 31, 2024.

HDB has revised its administrative fees to exclude GST. The fees charged to rent out a flat have been adjusted from $20 to $18, while the fees charged to rent out bedrooms have been adjusted from $10 to $9. The agency has also stopped charging GST for the administrative fee for compulsory acquisition of flats.

Those who need more information can visit https://go.gov.sg/hdb-gst-refund or contact HDB via the HDB InfoWeb, Mobile@HDB app, or the refund hotline on 1800-866-6812.

Meanwhile, LTA said its GST refund process will be carried out progressively from March 1 to June 30, 2024.

LTA had wrongly charged GST on nine fees. These include application fees for major modifications of vehicles, such as changing from a manual to an automatic transmission, and for converting a private hire car driver’s vocational licence to a taxi driver’s vocational licence, among other regulatory services.

The agency said it will credit refunds, ranging from 70 cents to $42.70 per transaction, to affected taxpayers with bank accounts registered with the LTA or through their PayNow accounts.

The agency will notify recipients when the refunds have been successfully credited, it added.

Affected taxpayers who do not have their bank accounts registered with LTA will be asked to update their bank account details via the OneMotoring website, or to register for a PayNow account with their bank and inform LTA.

The Office of the Public Guardian (OPG) had charged GST erroneously on fees to register a Lasting Power of Attorney, and to register as a professional deputy.

Professional deputies can be appointed to make decisions on behalf of a person who has lost his or her mental capacity.

Some 10,000 people and 50 professional deputies were affected by the erroneous collection of GST by the office, and had paid GST ranging from $3.24 to $35.98.

Refunds will be made to these affected taxpayers via PayNow or to the bank account they use for other citizen disbursement schemes like the GST Voucher scheme.

If those affected have died, the executor or administrator of their estate or their next of kin can contact OPG for the refund at enquiry@publicguardian.gov.sg or on 1800-226-6222.

URA is also taking steps to refund GST on development applications and lodgment fees when people apply for the change of use of premises, among other things.

Since Jan 1, 2019, about 37,000 such applications have been made by businesses and landed property owners, with GST paid ranging from $10.50 to $1,500.

URA said a significant proportion of these applications were likely by GST-registered entities such as businesses that had claimed input tax, so actual refunds will be much lower.

URA will conduct its refunds in two phases. From March 1 to June 30, 2024, it will contact affected taxpayers whose transactions were made on or after Jan 1, 2019, to facilitate the refunds.

Those who were wrongly charged GST before Jan 1, 2019, can apply to URA for refunds using the GST Refund FormSG on URA’s website from July 1, 2024.