GST is a self-assessed tax. IRAS believes that taxpayers are generally compliant and will comply voluntarily if they know how to. As part of our efforts to promote voluntary compliance, we conduct on-going campaigns to educate taxpayers and help them comply with their GST obligations. We also carry out regular audits to encourage voluntary compliance amongst taxpayers and ensure that every taxpayer pays his or her fair share of taxes. In addition, we identify key areas of compliance risks among taxpayers and adopt a risk-based approach to tailor specific compliance programmes for the higher risk industries.
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GST Compliance Focus for 2012
For 2012, IRAS will focus our compliance reviews on the following industries:
- General Contractors in Construction Industry
- Private Education Institutions
- Hand-Carried Exports Scheme (HCES)
General Contractors in Construction Industry
General contractors usually provide services to main contractors or sub-contractors involved in construction projects. It is common for the building materials required by the general contractor, to be procured by the main or sub-contractor. In such instances, the general contractor may bill the main or sub-contractor only for the difference between the services it provides to them and the cost of the materials procured.
Common Mistakes to Avoid
Notwithstanding that it receives only the net payment based on the difference, the general contractor should account for GST on the gross contracted fee for its services. The main contractor or sub-contractor will then account for GST on the supply of the raw materials, if it is GST-registered.
Example:
Private Education Institutions
Private education institutions (PEIs) conduct courses for local and foreign students. It has come to our attention that this industry segment may not be familiar with the correct GST treatment for course fees funded under the Skills Development Fund (SDF). IRAS has audited 6 PEIs and recovered a total of $424,255 in taxes to date.
Common mistakes to avoid
- PEIs account for GST on the course fee after deducting the funding received from the Skills Development Fund.
- PEIs may also engage foreign agents to assist in foreign students' admission into the school. For such service, PEIs may pay a commission to these foreign agents. PEIs account for GST on course fees after deducting the commission paid to the foreign agents.
The above practices are incorrect. In both instances, PEIs should charge and account for GST on
the full course fees for courses conducted locally, unless the participants attending in a business capacity belong overseas.
Hand-carried Exports Scheme (HCES)
Since 1 April 2009, all sales of commercial goods by GST-registered businesses and hand-carried via air through Changi Airport can only be zero-rated if they satisfy the documentation requirements under the
Hand-Carried Exports Scheme (HCES). Under the HCES, businesses must present their goods for inspection by Singapore Customs at the airport and obtain an endorsed export permit to support the zero-rating.
The HCES is compulsory for all goods hand-carried out of Singapore via Changi Airport. Businesses with valid commercial reasons may however seek the Comptroller's approval to exempt themselves from the scheme, but would still need to maintain alternative documents to prove export.
In 2012, IRAS will be checking on the compliance levels of GST-registered businesses which are required to maintain documents under the HCES for hand-carried exports as well as those which applied to exempt themselves from the scheme.
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Results of Recent GST Compliance Programmes
There are no major compliance problems noted in the sectors we have reviewed. Taxpayers have generally been compliant and most of the errors uncovered stem from a lack of awareness of GST obligations or an inadequate understanding of GST rules.
As for the exceptional cases involving tax fraud or evasion, IRAS will continue to take strong deterrent actions against those who intentionally cheat on their taxes.
The next section summarizes the findings from IRAS’ recent GST compliance programmes on the following areas:
Potential GST Registrants
In general, a person is liable to register for GST under the following situations:
- His total taxable supplies for the past 12 months exceeds $1 million; or
- His total taxable supplies for the next 12 months is expected to exceed $1 million
Audit Results
Since Sep 2007, IRAS has reviewed 384 potential registrants. We have recovered $29,705,052 in taxes with penalties amounting to $515,864.
Common Mistakes
Failure to aggregate income of all sole-proprietorship businesses
- Many sole-proprietors mistakenly believe that all their businesses registered under different trading names are separate legal entities. As a result, they do not aggregate the taxable turnover for all the businesses in determining their GST registration liability.
- A GST-registered sole-proprietor charges and accounts for GST only on selected businesses instead of all sole-proprietorship businesses under his name.
- Under the law, all businesses under a sole-proprietor’s name are considered as one entity. Hence, a sole-proprietor is liable to register for GST if the aggregate taxable turnover of all his businesses and income from all his trade and professions exceeds $1 million annually. Once GST-registered, the sole-proprietor is required to charge and account for GST on all his taxable supplies including those made by the various businesses under his name.
Failure to monitor their taxable turnover
- Many taxpayers failed to monitor their taxable turnover to ensure prompt GST registration.
Failure to aggregate income of all partnership businesses with same composition of partners
- Many partners are not aware that they need to aggregate the turnover of all partnerships with the same composition of partners, in determining their GST registration liability. Similarly, they mistakenly believe that each partnership business is a separate legal entity.
- Under the law, all partnerships with the same composition of partners are regarded as one entity. Therefore, partners are liable to register for GST if the aggregate taxable turnover of all their partnership businesses with the same composition of partners exceeds $1 million annually.
Computation based on net turnover
- Taxable turnover for the purpose of determining liability for GST registration refers to gross receipts or income received. Some taxpayers also have the misconception that the $1 million GST registration threshold refers to their business turnover after the deduction of expenses.
Failure to take into account professional fees and commission received
- Professionals such as insurance or property agents were not aware that fees and commission they receive should be taken into account in determining their liability for GST registration.
- Services provided in the course of any trade, profession or vocation such as insurance or property agency services, are considered as taxable supplies for GST purposes. Hence if a person’s business turnover including such fees and commission exceeds $1 million annually, he is liable to register for GST.
Omitting supply of labour or manpower
- Some taxpayers had omitted their supplies of manpower to other businesses in determining their GST registration liability, as they had mistakenly viewed such supplies as being equivalent to salary. Supply of manpower or labour is considered to be a taxable supply of service. Hence, a business or person needs to include the value of such supplies into its total taxable turnover in determining whether it is liable to register for GST.
Please refer to
Annex A - Case Stories on Potential GST Registrants (49KB) for case stories of taxpayers who should have registered their businesses for GST but did not because of lack of awareness of their GST obligations.
IRAS will continue to actively identify such potential registrants and bring them into the GST net. Businesses and individuals need to be aware of GST registration rules, constantly monitor their taxable turnover and ensure that they promptly register for GST. Non-compliance may lead to IRAS back-dating their GST registration date and as a consequence, they will have to account for GST on past transactions. Penalties may also be imposed for late GST registration and late payment of the GST.
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Price Display
GST-registered businesses are required to show
GST-inclusive prices
prominently in all displays, advertisements, publications and quotations to the public. This is to ensure that the public know upfront the final price of goods and services that they have to pay. The only exception is for businesses in the hotel and food & beverage (F&B) industries. These businesses may display GST-exclusive prices for goods and services that are subject to service charge.
Audit Results
Acting on feedback from consumers, IRAS identified 13 furniture retailers for audit in 2010 and discovered that 11 of the retailers did not comply with the price display requirement. Seven first-time offenders have since been warned to display correct GST-inclusive prices, while the four repeat offenders were imposed a $5,000 penalty each.
Common Mistake
Company G is a retailer of home furniture. It advertises its products in the Straits Times and Lianhe Zaobao without including the GST amount payable.
|
Based on Company G's Advertisement |
Based on Correct Price Display Requirement |
| Price of furniture advertised |
$899
|
$961.93
|
| GST amount payable |
$62.93
|
$62.93
|
| Final amount payable by customer including GST |
$961.93
|
$961.93
|
A $5,000 penalty was imposed on Company G as it had failed to comply with the price display requirement despite being informed by IRAS previously.
IRAS urges all GST-registered retailers (except hotel and F & B retailers) to ensure that they show
GST-inclusive prices prominently to the public. Failure to do so is an offence under the GST law and penalties may be imposed on non-compliant businesses.
Members of public who encounter wrong price displays for GST purposes may call or email IRAS at 1800 356 8633 or gst@iras.gov.sg.
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SME Manufacturers
Audit Results
Between Apr 2009 and Oct 2011, IRAS conducted audits on 93 SME manufacturers dealing with fabricated metal products and machinery and equipment. We have recovered $340,563 in taxes with penalties amounting to $51,006.
Common Mistakes
No major industry-specific errors were found from our audit of these manufacturers. The errors discovered were mostly common errors arising from lack of awareness of GST rules, wrong application of GST treatment and poor GST practices, such as:
- Claiming GST on disallowed expenses such as motor car expenses
- Claiming GST without valid tax invoice
- Failure to account for GST on provision of gifts or accommodation to employees
- Failure to charge and account for GST on disposal of business assets (e.g. motor vehicles)
- Lack of documentation to support zero-rating of indirect exports of goods
- Poor internal controls to ensure accurate GST reporting
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Marine Fuel Traders
Audit Results
Under the
Approved Marine Fuel and Trader (AMFT) Scheme, marine fuel traders in the bunkering industry may purchase marine fuel oil (MFO) locally without paying GST on their purchases.
In 2010, IRAS audited 30 traders under the AMFT scheme to check their compliance levels. We have recovered $ $1,020,904 in taxes and $146,278 in penalties.
Errors Found
No major scheme-specific errors were noted. Besides reporting errors, the errors found involve mainly:
General GST errors
Accounting errors
- Value of purchases extracted for the wrong period
- Value of purchases incorrectly extracted in foreign currency
- Computational errors
- Claiming GST on invoice with no GST charged
GST-registered businesses should ensure that there are proper internal controls in place to check the accuracy of their GST reporting. Accounting errors can occur during data entry and data extraction. Adequate checks are important to detect and minimise such errors before GST filing.
Please refer to Annex B - Case Stories on SME Manufacturers and Marine Fuel Traders (44KB) for case stories.
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Voluntarily Disclose An Error to Qualify for Reduced Penalties
GST-registered businesses are encouraged to conduct periodic reviews of their GST returns and to disclose any error voluntarily. To encourage voluntary disclosures of past errors and omissions, penalties may be reduced for voluntary disclosures which meet the qualifying conditions of IRAS’ Voluntary Disclosure Programme.
IRAS has designed a GST Assisted Self-help Kit (ASK) to help GST-registered businesses self-review their GST returns and manage GST compliance effectively. For more information, please refer to GST Assisted Self-help Kit.
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Compliance with Tax Obligations: File GST Returns and Pay Taxes on Time
All GST-registered businesses must file their returns electronically and pay GST no later than one month after the end of the GST accounting period. If businesses fail to file on time, IRAS will estimate the GST payable and impose a 5% penalty on the estimated tax. A $200 penalty will also be imposed for every month a return remains outstanding.
If GST-registered businesses do not pay taxes on time, aside from the 5% penalty, an additional penalty of 2% per month will be levied on the tax remaining unpaid after 60 days from the due date. Other actions like appointing the banks or customers as agents to recover the outstanding GST amounts may also be taken in respect of recalcitrant cases.
Even if the business has no transactions for that accounting period, it is still obliged to submit a "NIL" GST return.
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