Audit findings on recent compliance programmes on large businesses and businesses’ display of GST-inclusive prices to the public are summarised below.
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Large Businesses

Large businesses form 2% of the GST taxpayer population, yet they contribute more than 50% of the total GST payable. These large enterprises often deal with complex business arrangements, engage in cross-border transactions, and handle substantial high-value transactions. In addition, an increasing number are outsourcing their finance functions to overseas shared service centres or undergoing restructuring exercises. This exposes them to a higher risk of making tax errors when their systems and processes fail to accurately record business transactions for GST reporting.

Since 2015, IRAS has intensified its GST audits on large businesses. So far, we have conducted audits on 308 large businesses operating in various industries, including financial services, wholesale, retail, manufacturing, real estate, and construction.

A striking 77% of these businesses were found to have made GST errors, resulting in a total recovery of $73.19 million in taxes and penalties. On average, each case yielded a tax recovery of $308,000. These GST errors made by large businesses span a wide range of issues, including:

  • Fundamental errors (e.g., claiming blocked input tax, misclassifying supplies);
  • Incorrect tax treatment applied to non-trade receipts;
  • Omission of sales not captured within the invoicing module;
  • Technical errors stemming from the misapplication of tax laws in complex transactions; and
  • Failure to comply with GST-specific provisions (e.g., deeming of gift of goods, input tax apportionment).

Most of these errors stem from inadequate controls in the GST processes. This includes limited checks on tax classification for sales and purchases, a lack of training of staff in GST rules and updates, inadequate oversight  of GST documentation requirements, and a failure to communicate effectively between functional units

Summary of findings on common errors and control weakness, case stories:

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
          • Inadequate GST reference materials leading to poor technical understanding and interpretation of GST rules
          • Failure to perform periodic tracing of transactions to source documents
          • Lack of follow-up on export documentary requirements
          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
          • Inadequate staff competency and training in GST matters
          • Lack of review on billings processed outside the invoicing module
          • Non-standard transactions not surfaced to finance/tax team for assessment on GST implications
          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)
          • Fail to deem output tax on gifts made to staff and the free use of business assets by staff
          • Claiming of input tax on fringe benefits that fail the business test
          • Failure in communication between human resource function and finance/tax team
          • Lack of GST reference materials on fringe benefits
          Other transactions
          • Fail to charge and account for GST on:
            • supply of manpower services to subcontractor
            • sponsorship income
            • sales of scraps
            • proceeds from disposal of assets (e.g. computer) and investment properties
            • reimbursements wrongly classified as disbursements
          • Incorrectly zero-rated recovery of expenses on local accommodation and food & beverages
          • GST omitted on recovery of expenses that are ancillary to a primary standard-rated supply
          • Lack of review on non-routine transactions
          • Inadequate staff competency and training in GST matters
          GST return preparation
          • Incorrect reporting of figures due to transposition or formula error in GST working schedules
          • Manual adjustments not performed on:
            • input tax apportionment
            • repayment of input tax on unpaid tax invoices
            • accounting for output tax on advance payments received on deemed supplies
          • Lack of second-level review of GST submissions
          • Failure to perform reasonableness and variance checks
          • Infrequent sampling checks in the GST capturing and reporting 
          For more details, refer to  case stories of GST errors made by large businesses.

          Strengthen controls and improve GST compliance

          The audit results indicate the need for large businesses to strengthen their controls in GST-critical systems and processes to manage tax risks and ensure accurate GST reporting. Businesses should 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) to enjoy a one-time waiver of all penalties on disclosure of GST errors under ACAP, amongst other benefits. The one-time penalty waiver is subject to IRAS’ periodic review of the programme.

          Price Display

          IRAS conducted checks on the price displays of 193 GST-registered businesses, primarily in the food catering, fitness, and wellness industries. Among the audited businesses, 86 were required to amend their price displays and incurred penalties totalling $37,500 for non-compliance with the GST Act.

          It is mandatory for GST-registered businesses to prominently display, advertise, publish or quote (whether verbally or in writing) GST-inclusive prices. This ensures that consumers are fully aware of the final price they will pay for goods or services upfront.

          An exception is granted to hotels and food & beverage (F&B) establishments that impose service charge on their goods and services. They are not required to display GST-inclusive prices to ease their operations.

          Among the businesses audited that were found to have errors, most indicated that their published prices were subject to GST but failed to include the GST amount in the displayed prices. In some cases, GST-inclusive prices were not as prominently displayed as GST-exclusive prices.

          Common errors in price display detected

           

          Check your price displays now to avoid heavy penalties! 

          To assist GST registered businesses in adhering to the price display requirements, you can find examples of acceptable and non-acceptable price displays on the IRAS website. These examples are also covered under the IRAS e-learning course ‘Overview of GST' available to the public.

          It is important to note that GST registered businesses that fail to meet these requirements, even for the first time, may face penalties of up to $5,000. IRAS will not hesitate to take legal action against recalcitrant offenders.

          To avoid hefty penalties, GST registered businesses should promptly review their price displays to ensure they comply with the law.

          Results of Other Compliance Programmes

          2014-2015   Logistics Industry
          Sales of non-residential properties
           2012-2013    General Contractors in the Construction Industry
          Private education Institution
          Businesses under Hand-Carried Export Scheme (HCES)