This webpage provides information on IRAS’ audit and enforcement efforts, and shares some recent audit cases and the taxes and penalties imposed on businesses found to be non-compliant. It also explains the common GST errors and compliance issues that businesses should avoid.
IRAS conducts regular GST audits using a risk-based approach to select businesses for review. In FY2022/2023, 2,521 GST audits were completed across various industries, resulting in a recovery of $162 million, including penalties.
Businesses, regardless of size or type (e.g. sole-proprietors, partnerships, corporates), are at higher risk of GST errors and penalties if they lack proper oversight of their GST compliance. Conversely, businesses with strong GST governance can avoid costly mistakes.
Key elements of good GST compliance include personnel with sound GST knowledge, effective records management, robust internal controls and systems, and regular reviews.
IRAS shares selected audit cases and compliance programmes to illustrate common GST errors and compliance gaps, enabling other GST-registered businesses to proactively avoid these mistakes and make voluntary disclosures to IRAS if similar errors have been made. Voluntary disclosures incur no penalty or lower penalties than errors uncovered by IRAS.
Furthermore, individuals can report suspected malpractices via this form. A reward, equivalent to 15% of the recovered tax (capped at $100,000), is available upon request if the provided information and/or documents lead to the recovery of lost tax.
The following are examples of non-compliance detected from recent IRAS GST audits:
Case 1: Incorrect GST treatment of counter-supplies / barter trade
Company A (‘Co. A’) trades in fuels and provides intercompany services. Co. A sells and buys from Company B (‘Co. B’). Both are GST-registered businesses. Under a one-off business arrangement, both companies agreed to net off their respective supplies whereby Co. A issued a credit note to Co. B for the net difference on the purchases made from Co. B. Co. A reported the credit note in its GST return by reducing its output tax liability, and its routine GST processes did not detect this irregularity.
Following IRAS’ audit, both companies eventually revised the documentation issued for the counter-supplies and rectified the output tax that was under-accounted.
The output tax shortfall and penalties of close to $5 million was recovered from Co. A and Co. B was also required to account for output tax on its supplies to Co. A in full.
Every GST-registered business must account for GST on its taxable supplies. Co. A and Co. B, as separate GST-registered entities, are required to levy GST on the full selling price of their goods (and/or services) and issue tax invoices to each other. Subsequently, Co. A and Co. B need to report the output tax based on their respective gross value of goods sold and can claim input tax on their purchases, subject to the input tax claiming conditions.
Errors similar to those outlined in Cases 1 and 2 (detailed below) often result from deficiencies in the businesses' GST processes, such as inadequate oversight of tax classification for sales and purchases, lack of GST training for staff, or misapplication of tax laws.
Hence, it is crucial for businesses to provide regular GST training and updates for their staff and establish handover procedures to ensure continuity of GST knowledge and control practices. This is particularly vital for businesses with complex transactions. Additionally, businesses should implement internal procedures to flag exceptional transactions for further review and regularly reassess internal controls and systems to identify and address potential gaps. More information on IRAS’ Voluntary Compliance Initiatives can be found here.
Case 2: Failure to account for GST on services procured from overseas suppliers and other GST errors
Company C (‘Co. C’) is a financial institution. Co. C was found to have made several errors including the omission of output tax on the recovery of expenses from local related companies, overclaiming of input tax and omission of output tax for overseas purchases subject to Reverse Charge. These errors occurred as a result of staff unfamiliarity with new business transactions and Reverse Charge rules, and misapplication of GST treatment for the recovery of expenses. An error also arose from incorrect GST tax coding in the accounting system.
For these errors, a total of close to $3 million of GST and penalties was recovered from Co. C.
Reverse Charge
Since 1 Jan 2020, the Reverse Charge mechanism mandates that GST-registered
businesses account for GST on services procured from overseas if the purchaser is not entitled to full input tax credit. This was implemented to ensure equal treatment of all services consumed in Singapore, irrespective of their origin.
As of 1 Jan 2023, the reverse charge has been expanded to include the purchase of low-value goods. This requirement applies to all low-value goods, regardless of whether they are purchased from local or overseas suppliers, electronic marketplaces, or redeliverers, and irrespective of the suppliers' GST registration status.
Recovery of expenses
Businesses frequently recover a portion of expenses from related or third parties. The GST treatment varies based on whether the expense recovery is classified as a reimbursement or a disbursement. Hence, it is essential for businesses to discern between reimbursements and disbursements and apply the appropriate GST treatment accordingly.
Case 3: Failure to produce supporting documentation for input tax claims
Company D (‘Co. D’) trades in computer hardware and peripheral equipment. Majority of Co. D’s input tax on purported purchases of goods from businesses suspected to be involved in Missing Trader Fraud. Co. D could neither provide complete details of these purchases nor able to produce the purchase documentation (e.g. tax invoices) to substantiate its input tax claims. Additionally, Co. D also omitted to account for output tax for certain taxable supplies.
As a result, Co. D had to repay more than $5 million of input tax wrongfully claimed and output tax that was omitted.
Businesses are mandated by tax laws to maintain comprehensive and accur ate business records , including but not limited to receipts, invoices, bank statements, and accounting ledgers, for a minimum of 5 years. It is crucial for businesses to establish a robust record-keeping system to substantiate their tax declarations with the necessary documents. Additionally, businesses should ensure that their internal record-keeping processes are well-documented and easily transferable in the event of staff changes handling GST matters.
Furthermore, staff at all levels and functions should be educated and trained to identify indicators of Missing Trader Fraud (MTF), perform due diligence checks, and respond to the risks and results of these checks to avoid being involved in MTF, which can significantly impact the business.
Case 4: Fictitious input tax claims
Company E (‘Co. E’) trades in mobile phones. Co. E had claimed a refund of the GST incurred on the purchase of goods from Company F (‘Co. F’). Subsequent audit findings showed that Co. F did not sell any goods to Co. E. The business arrangement and the documents provided by Co. E could not conclusively support Co. E’s purported transactions with and payments to Co. F.
Hence, the refund claim of over $7 million was disallowed.
IRAS will not hesitate to take decisive actions against businesses engaging in fraudulent activities, including investigating and prosecuting those intentionally making fictitious tax declarations. For recent prosecution cases related to tax crime, please refer to this section on our website.