IRAS Recovers $175 million in GST and Penalties
IRAS advises businesses to register for GST on time
The Inland Revenue Authority of Singapore (IRAS) has recovered $175 million in GST and penalties during January to September 2019 from its audits and investigations of more than 2,000 GST-related cases. Of these, 53 cases were investigated for GST
fraud and evasion, 20 of which have already been charged in court. To-date, 14 cases have been convicted, while 6 cases are still being heard in court.
IRAS Identifies Businesses with Higher Non-Compliance Risk
IRAS has developed data analytics capabilities to detect non-compliance and evasion. With such capabilities, IRAS is able to use advanced statistical techniques to sift through its repository of information to identify high-risk cases.
Generally, non-compliance is more common among businesses with:
- Substantial cash transactions;
- Weak internal controls or processes; and
- No or poor record keeping.
IRAS observes that the above traits are common among self-employed/sole-proprietors and family-run businesses.
Family-run businesses are usually businesses in which two or more family members participate in running the business and where the majority ownership remains with the family. Family members usually take on various business roles from sales to accounting.
Some of these businesses which are handed from the founders to their successors tend to also pass down old, manual methods of accounting and record-keeping.
Example:
The Funeral Industry
One such industry is the funeral industry, which comprises more than 400 entities providing funeral-related services.
On 17 September 2019, Investigation Officers from IRAS conducted simultaneous raids on multiple premises of three funeral operators in Singapore. The operation covered more than 10 locations in different parts of the island. Computers, mobile phones, SIM cards and business records were seized. Photographs from the raids conducted are in the ANNEX (PDF, 467KB).
16 individuals are currently assisting IRAS in the investigations for their suspected involvement in tax evasion and failure to register the businesses for GST. Investigations are ongoing.
IRAS observes that most funeral operators are family-run businesses. The funeral industry is also largely cash-based and may not have proper record-keeping practices, as illustrated in the diagram below.
Businesses with inadequate record-keeping and accounting practices may fail to report sales and/or expenses accurately in their income tax returns and fail to register for GST when their 12-month taxable turnover exceeds $1 million.
-min.jpg?sfvrsn=f9963fdf_0 "Infographic Family Business")
Severe Penalties for Failure to Register for GST
All businesses, including individuals deriving income from their trade, profession or vocation are required to register for GST if their annual taxable turnover exceeds $1 million. However, there are businesses that suppress their turnover in order to stay below the $1 million threshold.
IRAS regularly conducts audits to identify businesses that fail to register for GST. Each year, IRAS typically uncovers about 100 businesses that fail to register for GST. On average, each of these businesses has to pay about $100,000 in GST and penalties to IRAS as a result.
In 2019, IRAS prosecuted one case where the sole proprietor of a funeral business failed to register for GST although his trade income had crossed the $1 million threshold. For giving incorrect information in his GST registration form and submitting an incorrect income tax return, the court ordered him to pay hefty penalties and fines. In addition, he had to account for the GST on his past years’ sales proceeds from the time the business turnover crossed the $1 million threshold.
Separately, a tax agent was ordered by the court to pay more than $80,000 in fines and penalties for assisting his client in under-reporting revenue figures in order that his client’s business turnovers will not exceed the GST registration threshold of $1 million. The tax agent and his client had a standing arrangement for the tax agent to under-report the tax filings of the client’s various business such that the client could avoid registering himself and his businesses for GST.
Tips for Businesses for Complying with GST Registration Rules
Tip #1 – Maintain good record-keeping practices and monitor your annual turnover
To avoid getting into trouble with the law, businesses should closely monitor their taxable turnover at the end of the calendar year, and promptly come forward to register for GST once their annual taxable turnover crosses the $1 million mark.
To help businesses determine whether they are liable for GST registration, IRAS has published a GST Registration Calculator that helps businesses compute their 12-month taxable turnover.
Tip #2- Be prudent and register early
Businesses whose taxable turnovers have exceeded $1 million but are not sure if they will exceed $1 million in the following year, should nevertheless register for GST. From IRAS’ audits, we found that some businesses failed to register for GST after their past 12 months’ turnover exceeded $1 million because they assumed they will not hit the $1 million mark again the following year.
In one case, a sole-proprietor selling disposable wares in a wet market did not register for GST when his 12-month taxable turnover first exceeded $1 million, as he was uncertain of his future taxable turnover since his sales fluctuate throughout the
year. However, as his 12-month taxable turnover continued to exceed $1 million for another year, IRAS back-dated his GST registration and recovered the GST for the past periods.
Improving GST Compliance: New IRAS Initiatives
To ease GST compliance, GST registration rules have been simplified with effect from 1 Jan 2019 such that businesses can determine their liability to register on a calendar year basis instead of on a quarterly basis.
To help businesses with compliance, IRAS has published a web-based and mobile-compatible calculator on 1 Oct 2019 to enable businesses to determine whether they are required to register for GST based on the new rules. The calculator is intuitive and simple to use; businesses only need to select its relevant sources of income (e.g. selling goods or providing services) and enter their income figures. The calculator determines which sources of income are to be included as taxable turnover and those with taxable turnover exceeding $1 million will be directed to myTax Portal to submit their registration application.
Lower Penalties for Prompt and Full Voluntary Disclosure
IRAS imposes lower penalties for taxpayers who promptly come forward with full disclosures of their mistakes uncovered in self-reviews.
Any business that fails to register for GST is still required to pay GST on all their past transactions from the date the business became liable for GST registration. GST is payable even if the amount was not collected from customers. In addition, failure to register for GST is an offence and businesses may be required to pay 10% of the total GST due as a penalty, and fined up to $10,000.
Mr Lawrence Eng, Assistant Commissioner of IRAS’ Investigation and Forensic Division, said, “Members of the public who have useful information to offer that can help us fight tax crimes are encouraged to step forward. IRAS takes a serious view of non-compliance and tax evasion. There will be severe penalties for those who fail to register for GST and willfully evade tax. IRAS would like to invite businesses, especially family-owned ones, to do a self-review of their past records and voluntarily disclose any errors made. IRAS will treat such disclosures as mitigating factors when considering the action to be taken.”
Inland Revenue Authority of Singapore