Recent GST Audits by IRAS

Company A has repeatedly failed to display GST-inclusive prices on its signages showing car park rates and wheel-clamp release fees at various car park sites on multiple occasions.

For these repeated offences, a penalty of $5,000 was imposed on Company A. 

Company B claimed to have purchased storage devices (e.g. microSD cards and flash drives) and camera add-on accessories from newly incorporated GST-registered suppliers to be sold to ready customers overseas assigned by Person C. Company B then claimed GST refunds incurred on the purchases and reported the onward supply as its zero-rated supplies. For these back-to-back purchases and sales, Company B was promised a pre-determined profit margin with ready customers; it was also not required to hold inventory. Company B was not vigilant to the too-good-to-be-true deal and did not perform due diligence checks on the suppliers. Subsequently, it was found to be involved in a Missing Trader Fraud arrangement and had its input tax claims disallowed and zero-rated supplies nullified.

As a result, Company B had to repay more than $10 million of input tax previously claimed and penalties.

Company D made a voluntary disclosure that it had wrongly claimed input tax on imports belonging to its overseas GST-registered related company, Company E.

Although the import permits were in Company E’s name, Company D had the misconception that it could claim the import GST since it had paid for the import GST and would eventually purchase the goods from Company E. However, the import GST should have been rightfully claimed as input tax by Company E. Company D would only be able to claim the GST that was charged by Company E on the local sales of goods to Company D.

As a result, Company D had to reverse its input tax of $6 million wrongfully claimed. Company E in turn was able to claim the input tax.

Company F is a game developer who also supplies media sales (advertising spaces) within its game applications. Company F was found to have made several errors including the incorrect zero-rating of advertising spaces within its game applications. Although the GST treatment of media sales has changed with effect from 1 Jan 2022, Company F continued to determine if its sales should be standard-rated or zero-rated based on where the advertisements were circulated. Under the new GST treatment from 1 Jan 2022, Company F should rely on the belonging status of the contracting party and the party directly benefiting from the sale of the advertisement spaces to determine the GST treatment. Hence, Company F had wrongly zero-rated its supply of media sales to Company G who belongs in Singapore.

Following IRAS’ audit, a total of more than $2 million of GST and penalties was recovered from Company F for the errors made.

Person H is a sole proprietor who is in the business of providing manpower services. Due to poor record keeping practices, Person H had failed to account for output tax on the sales relating to some invoices kept in a separate file. She also did not maintain valid tax invoices to support several of her input tax claims. In addition, Person H carried on a property leasing business where she failed to account for output tax on the lease of furniture and fittings in a residential property.

For these errors, a total of close to $400,000 of GST and penalties was recovered from Person H.

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.

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.

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.

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.