GST trader charged on wrongful GST claims

15 February 2008

Inland Revenue Authority of Singapore (“IRAS”) brought the sole-proprietor of Dlog Electronics Trading, Mr. Png Yeow Leng (“Png”), to court this morning on 8 counts of offence under the GST Act.

Png faced four charges for making false claims of GST refunds over a one-year period straddling from 2004 to 2005. The GST refunds fraudulently collected from IRAS amounted to $41,985.35. Png had further deliberately destroyed all his records in order to conceal his offence of making false entries in his GST returns wilfully with intent to evade GST and was charged on 3 counts of failing, without reasonable excuse, to keep and preserve records. Failure to keep and preserve records is punishable under section 46(6) of the GST Act. He was also charged for giving false answers in writing when he was asked to supply information to IRAS during an audit.

Modus Operandi

GST traders can offset the GST they pay on their purchases against the GST they charge on sales, paying the net difference to the taxman. GST on goods to be exported is zero-rated i.e. traders need not collect GST on exports. If a business incurs more GST on its purchases than it collects from sales, it can claim a refund of the shortfall from IRAS.

Png had familiarised himself with the GST rules and devised a scheme to fraudulently obtain GST refunds – besides merely inflating the value of his taxable purchases to increase his input tax claims, he also inflated the total value of his supplies in order to conceal his inflation of taxable purchases. As there is no output tax charged on exports, Png inflated the value of exports more than the value of local supplies so as to obtain GST refunds he was not entitled to.

In Png’s response to IRAS’ audit queries, he had added in fictitious transactions in the sales and purchases listings to support the inflated values of sales and taxable purchases reported in his GST returns.

Under section 46(1) and (2) of the GST Act, a GST trader is required to keep business and accounting records, copies of all tax invoices and receipts issued by him and tax invoices received by him and to preserve such records for a period of not less than 7 years. Failure to do so is an offence. Under section 46(6), the offence is punishable with a fine not exceeding $5,000 or to imprisonment for a term not exceeding 6 months or to both and, in the case of a second or subsequent conviction, to a fine not exceeding $10,000 or to imprisonment for a term not exceeding 3 years or to both. 

Png flouted the law as he did not have any of the abovementioned records of his genuine business transactions for the accounting periods from the date of his GST registration in 1999 to 31 March 2006, for which the accounting periods are less than 7 years back. Investigations revealed that Png had destroyed the physical copies of all records that had been in his possession out of frustration and fear that the false entries in his GST returns would be detected.  He had also disposed of his computer, which contained the digital copies of the sales and purchases listings of Dlog, by selling it to “karang guni”. His breach of the duty to keep and preserve records was a consequence of his deliberate destruction of the records to conceal his offence of making false entries in his GST returns.

Penalties under the GST Act

For the offences under section62(1)(b) of the GST Act, Png can be fined up to $10,000 or jailed for up to 7 years or both in addition to a penalty of three times the total tax undercharged which works out to $94,918.

For the offences under section 46(1), Png can be fined up to $5000 or to imprisonment for a term not exceeding 6 months or to both and, in the case of a second or subsequent conviction, to a fine not exceeding $10,000 or to imprisionment for a term not exceeding 3 years or to both.

Two other charges will be taken into consideration when he is sentenced on Feb 22. Png is now out on $5000 bail.

GST traders must not make fraudulent claims

IRAS takes a serious view on GST-registered traders who wilfully make false claims for refund of input tax or under-charge GST on sales.  Strong deterrent measures including prosecution will be taken against those traders who wilfully defraud GST.

With the latest prosecution case, IRAS would like to send a deterrence message to GST traders that IRAS would prosecute those who defraud GST.

GST traders must keep records to support declarations

IRAS has observed through its GST audits that generally GST traders do keep accounting records and source documents to support their GST declarations, but we also found that a number of the accounting records and source documents are incomplete. Thus, we will take this opportunity to highlight the complete set of records that GST traders should keep and the length of time these documents should be kept.

Records Required

Under the GST law, every GST-registered trader has to keep the following accounting records and source documents for at least 5 years[1]:

(a)  Business and accounting records e.g. sales book, purchase book, cashbook and GST account.

(b)  Copies of tax invoices and receipts issued for sales;

(c)  Suppliers’ tax invoices and import permits;

(d)  Export documents e.g. bill of lading, air waybill, note of shipment or subsidiary export certificate;

(e)  Credit and debit notes;

(f)   Payment evidence e.g. bank statement and remittance advice.

Please refer to Appendix 1 for more general information on record-keeping requirements. IRAS would like to remind all GST-registered traders to keep proper records and accounts of all their transactions.  The records should be kept in such a manner that will enable IRAS to easily check the figures reported in the GST returns.  All the records must be kept up-to-date and must be in sufficient detail to allow the correct calculation of the amount of GST to be paid to, or claimed from, IRAS.

Issued by Inland Revenue Authority of Singapore

Records to keep and preserve

To support the declarations in the GST returns, GST traders must keep the following listing for each reporting period:

The listings should contain the following information:

For standard-rated/ zero-rated/ exempt supplies

(a)  Date of invoice;

(b)  Invoice number;

(c)  Name of customer (if known);

(d)  Brief description of goods sold or services performed;

(e)  Invoice amount (excluding GST);

(f)  GST amount (if applicable); and

(g)  Destination of goods (if applicable).

For taxable purchases and input tax claims

(a)  Date of invoice;

(b)  Invoice number;

(c)  Name of supplier;

(d)  Brief description of purchase or expense;

(e)  Invoice amount (excluding GST); and

(f)   GST amount.

Source documents are required to substantiate the figures in the listings. GST traders must at least have the following source documents:

(a)  Tax invoices and import permits to support input tax claims for local purchases and imports; and

(b)  Sales invoices, shipping documents and payment evidence to support zero-rating for exports.

GST traders that wish to have more details on records and accounts keeping may refer to our e-tax guide “How do I keep records and accounts?” on our website www.iras.gov.sg

[1] For records pertaining to the prescribed accounting periods ending on or after 1 Jan 2007, the minimum period of retention is 5 years. For records pertaining to the prescribed accounting periods ending before 1 Jan 2007, the minimum period of retention is 7 years.