A company director was sentenced to eight weeks’ jail for fraudulently claiming a Productivity and Innovation Credit (PIC) cash payout of $58,143.60 for his company. This is the first PIC prosecution case since the scheme was introduced in 2010.

Mr Khoo Tzyh Shin ("Khoo", 34) is a Director of Greenit Pte Ltd - a computer equipment and hardware wholesaler and computer memory modules distributor. He is the first director to be charged under section 37J(4)(b) of the Income Tax Act for wilful intent to assist a company in fraud, by obtaining a cash payout which it was not entitled to. Khoo was ordered by the court to pay a penalty of $232,574.40 for the crime.

The court also ordered Greenit Pte Ltd ("Greenit") to pay a fine of $10,000 and a penalty of $232,574.40. The penalty is four times the amount of cash payout that it had fraudulently claimed.

Objectives of the PIC scheme

The PIC scheme was introduced to support businesses that invest in innovation and productivity improvements. Businesses can enjoy a 400% tax deduction or 30% cash payout ^[1] for investments under six qualifying activities. In Budget 2013, the PIC Bonus was introduced to provide businesses a dollar-for-dollar matching cash bonus on top of the existing PIC tax deductions and/or cash payout.

To qualify for the PIC cash payout, businesses must have:

1. Incurred PIC-qualifying expenditure during the basis period of the qualifying YA;
2. Active business operations in Singapore; and
3. Employed and made CPF contributions for at least three local employees. These three local employees must not be sole-proprietors, partners and shareholders who are directors of the company.

Fraudulent PIC claims

IRAS' investigation revealed that Khoo had falsified invoices and declared a sum of S$193,812 as qualifying expenditure in order to claim the PIC cash payout when there was no such expenditure incurred by the company. The fraudulent claim was committed with the wilful intent to obtain a PIC cash payout that the company was not entitled to.

Khoo pleaded guilty to assisting Greenit in making the fraudulent PIC claim.

IRAS takes a serious view of any abuse of PIC scheme

IRAS takes a serious view of taxpayers who defraud the government. Offenders convicted of PIC fraud will have to pay a penalty of up to four times the amount of cash payout fraudulently obtained, and a fine of up to $50,000 and/or imprisonment of up to five years.

Examples of what IRAS regards as abuse of the PIC scheme are as follows:

1. Claiming PIC using false records or documents, where no such expenditure was incurred or where the actual amount incurred was lower.
2. Creating a shell company to make PIC claims on purchase of equipment from a related company, where no such purchases were made and where the automation equipment continue to be owned and used by the related company.
3. Claiming PIC based on collusion with a third party to purchase automation equipment, when the selling party is not the legal owner of the equipment and was merely renting or leasing it.
4. Using phantom employees to meet the PIC qualifying condition of having made CPF contributions for three or more local employees.
5. Engaging in arrangements that seek to artificially inflate PIC claims such as purchase/lease arrangements bundled with non-qualifying costs (for example, offering a high cash back for trade-in of an old asset).
6. Artificially inflating the staff cost allocated to software development.

To guide businesses, IRAS has published on its website a list of common mistakes to avoid when claiming PIC:

https://www.iras.gov.sg/irashome/Schemes/Businesses/Productivity-and-Innovation-Credit-Scheme/Common-Mistakes-to-Avoid-and-Things-to-Take-Note-of/

Businesses that wish to report malpractices or potential abuses of the scheme can write to:

Inland Revenue Authority of Singapore
Investigation & Forensics Division
55 Newton Road, Revenue House
Singapore 307987
Email: [email protected]

Find out more about PIC

Businesses that require additional information or assistance in claiming PIC can refer to the following:

1. Website: http://www.iras.gov.sg/irashome/picredit.aspx
2. Email:  
   
   • Companies: [email protected]
   • Self-employed/partnership: [email protected]
3. Helplines
   • Companies: 1800 356 8622
   • Self-employed/partnership: 6351 3534
4. PIC seminars
5. One-to-one PIC clinics

Businesses are encouraged to make full use of these complimentary PIC clinics. There are sessions available from Sep to Dec 2013.

Inland Revenue Authority of Singapore