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118 GOODS & SERVICES TAX - MAGAZINE [Vol. 1 any GST paid on goods and services supplied to him for the purpose of his business. The ‘sale and lease of residential properties and financial services’ are exempt from GST in Singapore. In short, in Singapore, GST is a tax on domestic consumption. The tax is paid when money is spent on goods or services, including imports. It is multi-stage tax which is collected at every stage of the production and distribution claim. 2.5 HONG KONG GST - GST is also known as value added taxes (VAT) and sometimes sales taxes. GST and VAT are the same tax under different banners. They are taxes charged on the consumption (or spending) and not on income earned. Because of their underlying natures, they ultimately impact only on private consumption. Businesses are entitled to a refund (usually by way of a credit against GST collected on sales) for any GST paid in respect of goods and services consumed by the business. The two principal features of a broadly-based GST are that the tax applies to virtually all domestic consumption of goods and services and that it is a tax paid by the final consumer. GST is collected at each stage of the chain of production and distribution. Each party accounts for the tax on the value that has been added to the goods and services. Every party charges GST on its outputs (output tax), but can claim credits for all tax paid on the goods and services when received (input tax). Although intermediate purchasers of goods and services pay GST, because of the credit-offset mechanism, the final and total burden of the GST is paid for only by the final consumer. There is no cascading of the tax. GST is based on the concept of ‘taxable supplies’. Every person making taxable supplies exceeding a legislatively specified sum or engaged in certain business must be registered for GST. For those suppliers whose taxable supplies do not exceed the registration threshold, registration is not mandatory but GST input credits can only be claimed if a business is registered. Many jurisdictions allow a system of voluntary registrations for businesses below the statutory thresholds. Where goods or services are exempt from GST, no tax is charged by the vendor on the consumption but the vendor cannot claim credits for GST paid at the input stage. Internationally, the treatment of financial services, e.g., normal bank dealings that are not zero-rated, is not yet settled. In many cases, financial services are exempted from GST because of competition in the international market place. The GST is levied at a flat rate of 5 per cent. The Government undertakes to decrease or eliminate other taxes to make it revenue neutral. GST in Hong Kong is a self-assessment tax. Key aspects of Hong Kong’s GST could be summarized thus :— � Export of goods, international supplies, and financial supplies would not be subject to GST; � Residential property sales and rentals would not be subject to GST; GOODS & SERVICES TAX CASES ❑ JANUARY 20 - FEBRUARY 4, 2010 ◆ 28
2010] GST - THE SCENARIO IN SOME OTHER COUNTRIES 119 � GST postponement schemes would be provided to ease importers’ cash-flow issues arising from GST. � The Government would be GST-registered to provide a level-playing field with the private sector. � A Tourist Refund Scheme would be included to allow visitors to obtain a refund of GST on goods they had purchased in Hong Kong and were taking home with them. � Charities would be treated as ‘taxable persons’ to allow them to reclaim input GST. An important aspect of Hong Kong’s GST had been that the Government proposed that, for the first five years after the GST’s introduction, all revenue it would generate after deducting administrative costs would be returned to the community as tax relief and other compensation measures. However, the GST was withdrawn in Hong Kong in a surprise announcement made on December 5, 2006. Henry Tang Ying-yen withdrew the plan citing lack of public support, ‘it’s clear .........that we have not been able to convince the majority to accept a GST as the main option to address the tax base problem’. The withdrawal was linked to the comments, three days earlier, of Chinese State leader Wu Bangguo to senior Hong Kong officials ‘to keep their fingers on the pulse of the people’ and to foster ‘social economy’, and to the impending sub-sector polls for the Election Committee which will pick the new Chief Executive in March 2007. However, after the announcement, Henry Tang insisted that the decision to withdraw the proposal was ‘entirely my own’ and free of any political consideration. 2.6 JAPAN’S GST - In Japan, the equivalent of VAT or GST is known as Consumption Tax (‘CT’), and was introduced in January 1989. It is similar to the European Union’s VAT system, requiring re-calculation and payments to the tax authorities at each transaction point in the onward sales chain. The Japanese CT rate is currently 5 per cent : 4 per cent national levy; 1 per cent regional levy. There is no requirement for companies to formally register with the Japanese tax authorities for CT. The tax authorities regards the first tax filing as the application for registration, and a tax office will be allocated to the company. For foreign companies providing goods or services in Japan, there may be a statutory obligation to charge CT. This includes the ongoing compliance requirements to file periodic tax returns, and pay over any CT due to the Japanese tax office. Typical situations requiring Japanese CT compliance include :— � Where goods are delivered within Japan; � If the foreign trader imports goods in Japan; and GOODS & SERVICES TAX CASES ❑ JANUARY 20 - FEBRUARY 4, 2010 ◆ 29
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