Large businesses form 2% of the GST taxpayer population but contribute more than 50% of the total GST payable. Large businesses often deal with complex business arrangements, cross-border transactions and have voluminous and high value transactions. Increasingly,
businesses are also outsourcing their finance functions to overseas shared service centres or undergoing restructuring exercises. This makes them more vulnerable to making tax errors when their systems and processes fail to capture the business transactions accurately for GST reporting.
Since 2015, IRAS has stepped up GST audits on large businesses. To date, we have conducted audits on 308 large businesses across various industries such as financial services, wholesale, retail, manufacturing, and real estate & construction.
77% of these businesses made GST errors and the total amount of tax and penalties recovered is $73.19 million. The average tax recovery per case is $308,000. The GST errors made by the large businesses are diverse and include the following:
Fundamental errors (e.g. claiming of blocked input tax, misclassification of supplies);
Incorrect tax treatment applied for non-trade receipts;
Omission of sales on receipts captured outside invoicing module;
Technical errors arising from misapplication of tax law for complex transactions; and
Failure to comply with GST-specific provisions (e.g. deeming of gift of goods, input tax apportionment).
The majority of the errors arose from inadequate controls in the GST processes such as limited checks on tax classification of sales and purchases, lack of training for staff in GST rules and updates, inadequate oversight of GST documentary requirements and failure
to communicate between functional units.
| Category | Types of common errors | Control Weakness |
|---|
| System-related | - GST undercharged on standard-rated supplies due to:
- incorrect set-up of GST rate
- misclassification as zero-rated or out-scope supplies
- Claiming input tax on disallowed expenses and overseas VAT/GST
- Over-claiming input tax on:
- foreign currency denominated invoices using in-house exchange rate
- invoices issued by non GST-registered supplier
| Failure to perform GST variance checks Lack of verification on GST coding at system set up, issuance of invoice or posting of transactions Failure to update GST registration status of vendors in the accounting system Lack of oversight of outsourced Accounts Payable (AP) function - Inadequate staff competency and training in GST matters
|
| Cross border transactions | - Insufficient export documents to support zero-rating of goods exported under indirect export arrangement and hand-carried export scheme
- Incorrectly import goods belonging to other local persons
- Incorrectly zero-rated services under a contract with:
- an overseas person and the services directly benefit a local person
- a local person and the services directly benefit an overseas person
| |
| Related party transactions | - Omission of sales on:
- billings captured outside of invoicing module (e.g. debit notes)
- supplies made to related parties
- recovery of staff expenses (e.g. insurance premiums, accommodation, car rental)
- supplies netted off against purchases from related parties
- Fail to deem output tax on free use of business premises or business assets by related parties
- Claiming of input tax on:
- tax invoices issued to related parties
- imported goods belonging to related parties
- expenses incurred by a dormant member of the GST Group
| |
| Staff-related transactions | Did not account for output tax on collections from staff (e.g. staff pass replacement fee, co-payment of medical expenses, mobile phone usage, transport)
| |
| Other transactions | | |
| GST return preparation | | Lack of second-level review of GST submissions Failure to perform reasonableness and variance checks Infrequent sampling checks in the GST capturing and reporting process
|
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For more details, refer to
case stories of GST errors made by large businesses.
The audit results indicate the need for
large businesses to strengthen their controls in GST-critical systems and
processes to effectively manage tax risks and ensure accurate GST reporting.
Businesses are advised to consider GST implications for complex or new business
arrangements and finance/tax staff should keep abreast of changes in GST rules
that may affect the company’s GST reporting obligations.
Large businesses are also encouraged to
undertake IRAS’ GST Assisted
Compliance Assurance Programme
(ACAP) before 31 March 2024 to enjoy a one-time waiver of all penalties on
disclosure of GST errors under ACAP, amongst other benefits.
IRAS conducted checks on the price displays of 193 GST registered businesses, primarily in the food catering, fitness and wellness industries. Of these businesses audited, 86 were required to amend their price displays and also paid penalties totaling $37,500 for failure to
comply with the requirements under the GST Act.
GST registered businesses must display, advertise, publish or quote (whether verbally or in writing) GST-inclusive prices prominently so that consumers know upfront the final price they have to pay for goods or services.
Among the businesses audited and found with errors, most indicated that their published prices were subject to GST but failed to include the GST amount in the displayed prices, or displayed GST-inclusive prices less prominently than the GST-exclusive prices.
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Check your price displays now
to avoid heavy penalties!
To help GST registered businesses comply with price display requirements, the acceptable and non-acceptable price displays are published on the
IRAS website. Such examples are also covered under the
IRAS e-learning course ‘Overview of GST’ available to all businesses.
GST registered businesses that fail to comply with the requirements, even in the first instance, can pay a penalty of up to $5,000. IRAS will not hesitate to prosecute recalcitrant offenders.
To avoid heavy penalties, GST registered businesses (with the exception of businesses in the hotel and food & beverage industries that impose a service charge) should review their price displays immediately to ensure they are in compliance with the law.