The GST compliance landscape in Singapore
The Inland Revenue Authority of Singapore (IRAS) has achieved yet another record collection of GST for the fiscal year ending March 31 2013, write Lam Kok Shang and Gan Hwee Leng of KPMG.
According to the IRAS' latest annual report, total GST collections came in at SGD9.04 billion ($7.24 billion), representing a 4% hike from the previous year's collection of SGD8.69 billion. This latest round of GST collections has surpassed the annual individual income tax collections of the last few years, representing strong, continued consumption demand amid economic uncertainty.
Collections of GST account for about 22% of Singapore's total tax collection, which is significant.
Given that GST is a self-assessment tax, it is important that GST-registered companies be compliant with the relevant GST legislation so that GST returns are correct and the right amount of GST is paid.
The IRAS strategy to ensure compliance
From the implementation of GST in Singapore in 1994, the IRAS has made great strides in facilitating self-compliance among businesses.
It has published guidance notes interpreting GST legislation and periodically reviews its rules as well as holds dialogues with industry representatives to gather feedback. This allows the authorities to fine tune their policies and administrative guidelines, in addition to the audits they conduct of businesses.
More recently, it has introduced self-review programmes.
Over the past few years, the IRAS has been very transparent about what industries it would target for a GST audit each year. These industries included a wide range such as wholesale electronics traders, small and medium enterprise manufacturers, motor traders, general contractors, private education institutions and businesses involved in hand carried goods for export.
For the fiscal year ending March 31 2013, the amount of GST under-accounted and penalties collected from the GST audit cases was SGD109 million. This is up from the SGD80 million collected in the previous fiscal year.
With almost 3,000 companies audited annually, this can be seen as an indicator of the intensive efforts of the IRAS to enforce compliance.
In cases where the IRAS detects fraud, such as GST claims made on falsified tax invoices, it has demonstrated its uncompromising stance on hauling fraudsters to court. Many are penalised with an appropriate punishment to act as a deterrent to others.
Assisted compliance assurance programme
On the self compliance front, one of the initiatives to encourage self help is the launch of the assisted compliance assurance programme (ACAP) two years ago.
Well received by businesses here, it is essentially a voluntary compliance programme that encourages GST-registered businesses to establish more robust GST accounting and reporting processes.
Underlining this approach are the sets of guidance provided for businesses to undertake a holistic review of the robustness and effectiveness of their internal control system where it concerns GST compliance. This in turn facilitates better GST risk management.
To encourage businesses to participate in ACAP, the IRAS co-funds 50% of the cost for engaging an independent ACAP reviewer engaged by the ACAP applicant. This is capped at SGD50,000.
We applaud the IRAS' foresight in setting a precedent in history by being the first tax administration to co-fund a tax compliance programme.
Interest from businesses was so overwhelming that the original SGD5 million government budget set aside for this co-funding over five years was exhausted barely eight months after the launch.
This strong response also signals the high priority GST registered businesses place on GST compliance.
Riding on this positive response, the IRAS topped up another SGD5 million last year to encourage more businesses to embark on ACAP. Of this, SGD4 million has been fully utilised with the remaining SGD1 million reserved for applications made from April 1 2014.
Besides this co-funding support, the IRAS affords a host of benefits, such as:
A step-down of IRAS compliance activities for five years for companies with ACAP premium status, or three years for companies with ACAP merit status;
Faster GST refunds within three working days from the date of electronically filed GST returns (as opposed to the usual time of up to three months);
Faster issuance of GST rulings and resolution of GST issues raised with the IRAS;
Auto renewal of the GST schemes, such as the major exporter scheme and import GST deferment scheme.
Full waiver of penalties for inadvertent GST errors which are voluntarily disclosed during an ACAP review.
To date, businesses which have participated in ACAP have had encouraging feedback. While it takes much effort to document processes and establish additional controls to bridge gaps in GST controls, many indicate the ACAP journey has deepened their GST knowledge. It has also raised their awareness of effective controls in ensuring GST compliance in the day-to-day operations.
Companies considering new business ventures also become aware of the need to consider the GST implications involved.
In all, ACAP applicants emerged with a more robust internal control system after this exercise.
Assisted self-help kit
For companies with less extensive internal control processes or simpler business models which may feel ACAP is not for them, they can consider another compliance programme – assisted self-help kit (ASK), to manage their GST compliance.
The ASK focuses on three key aspects:
Implementing good GST practices involving people, record-keeping, systems and internal controls to effectively and adequately handle the GST reporting of transactions;
Assessing by way of a pre-filing checklist to ensure GST returns are correct before submission;
Conducting an annual review of past GST returns for early detection of GST errors.
To explain how this package is to be adopted, the IRAS has held workshops and invited companies to participate.
One incentive to encourage voluntary adoption is that any errors discovered through this review and voluntarily disclosed to the IRAS can benefit from a waiver or reduced penalties under the IRAS' voluntary disclosure programme (VDP).
Under the VDP, generally, errors resulting in underpaid GST discovered within the last financial year can enjoy a full waiver of penalty.
Beyond the first year, a penalty of 5% is levied instead on errors disclosed, as opposed to up to 200% penalty for errors arising from negligence.
Publication of e-tax guides
New e-tax guide on reimbursement and disbursement
Besides the introduction of self-review compliance programmes, the IRAS is active in engaging the business community in what tax guidance it would find useful. This guidance, which can relate to specific industries or transactions, is published on its website regularly.
Revisions are also made to existing guides to incorporate impact on the GST treatment on account of development in the industry.
For instance, an e-tax guide titled GST: Guide on Reimbursement and Disbursement of Expenses was published in May this year to provide guidance on the GST treatment for the recovery of expenses. It focuses on three areas:
GST principles for differentiating between a reimbursement and a disbursement, and indicators to assist in this differentiation;
GST treatment of reimbursement of expenses; and
Concession granted on the claiming of input tax for disallowed expenses, where these are recovered from another GST-registered business.
This e-tax guide includes an administrative concession to allow input tax claims on blocked expenses, which would otherwise not be claimable. These include medical expenses, family benefits and medical and accident insurance premiums if a company recovers the expenses in full from your GST-registered related company.
To enjoy this concession, recovery should not be ancillary to a primary supply. For instance, these expenses form the basis of arriving at your management fee or are recovered as out-of-pocket expenses in connection with the management fee.
This concession granted on the claiming of input tax on blocked expenses mitigates tax cascading, when a company assists related companies in acquiring such services from suppliers and addresses inequity in GST treatment.
However, some of the conditions stated could also deny some deserving cases from the concession.
For instance, if the related entity is not GST-registered, it could find itself in a situation where the GST has to be paid, and the higher amount of GST levied by the original supplier invariably becomes the additional cost to the related company.
The IRAS also clarified that certain recovery may even be treated as no supply if it is compensatory and punitive in nature.
For example, a car rental company's recovery of a fine for illegal parking from a customer or a supplier's recovery of the debt collection fee from its customers to recover debt owned by its customers.
E-tax guides on the logistics services and banking industries
More recently, the IRAS published e-tax guides for industries such as logistics and banking.
Titled GST Guide for the Logistics Service Industry, it provides guidance on the GST treatment of handling, storage and transport services within free trade zones (FTZs) or designated areas, as well as outside the FTZs.
Another e-tax guide for the banking industry provides GST guidance on common situations faced by the banks.
Such periodic guidelines are welcomed by the industries concerned.
Exemption of investment precious metals (IPM)
The IRAS actively seeks feedback to fine tune its industries through dialogues with industry players. A good example is the exemption of investment precious metals.
Before October 1 2012, the importation and supply of all precious metals in Singapore was subject to GST. Consequently, the GST incurred was recoverable from the IRAS as an input tax credit, to the extent that it is for the making of taxable supplies.
Effective October 1 2012, the importation and local supply of IPM, in the form of a bar, ingot or coin that meet certain criteria, became exempt from GST.
This change was in recognition that the nature of the IPM essentially makes them financial assets. They are just like other actively traded financial instruments such as stocks and bonds, where supplies are exempt.
Also calculated to facilitate the development of IPM refinery and trading industry, this change demonstrates that the IRAS is prepared to amend policies to facilitate the growth of certain sectors in Singapore.
In recent years, the IRAS has stepped up its audit activities following the introduction of the ACAP and ASK self review programmes. GST registered businesses in Singapore should review their GST compliance policy if they have not done so.
If your company has not embarked on any of these compliance programmes, it is also timely to consider adopting them.
For companies with turnover of more than SGD1 billion, ACAP affords a more comprehensive package and the benefits derived are immeasurable. They can consult a tax agent for advice on which programme best suits their business.
Lam Kok Shang
Partner and head, indirect tax
Tel: +65 6213 2596
Fax: +65 6224 1345
Kok Shang heads the KPMG indirect tax practice and the free trade agreement desk in Singapore. He has 27 years of experience working in a public accounting environment, with 13 years spent working on corporate tax before moving on to specialise in GST. He was involved with GST before its inception in April 1994.
On January 1 this year, he was appointed by Finance Minister Tharman Shanmugaratnam to sit on the GST Tax Review Board for three years. The board is an administrative tribunal established to adjudicate disputes between taxable persons and the comptroller of GST with regard to GST matters. Kok Shang also sits on the GST Committee of the Singapore Institute of Accredited Tax Professionals.
Kok Shang has vast experience advising on transaction restructuring to achieve GST efficiency, and on GST implications arising from M&A, including the transfer of businesses. His experience also includes performing GST prudential reviews, GST due diligence and advising on the application for the ACAP, ASK and the mandatory compliance assurance programme (CAP).
Kok Shang is a regular contributor to International Tax Review and many of KPMG's international indirect tax publications. International Tax Review named Kok Shang as one of Singapore's leading tax advisers in 2012 and 2013.
Gan Hwee Leng
Partner, indirect tax
Tel: +65 6213 2813
Hwee Leng is a partner of the indirect tax practice and has vast experience in GST related matters both as a regulator and as a business adviser. She has assisted businesses in responding to audit queries from the IRAS. She advises clients of their GST process controls in connection with the ACAP, ASK and the CAP.
Before joining KPMG, Hwee Leng was a senior tax officer with the IRAS. She was part of the GST implementation team that drafted the circulars on the operation of the GST, GST laws, schemes for businesses and the marketing of GST to relevant stakeholders. Following GST's implementation in 1994, she was involved in the audit of GST-registered businesses, the drafting of GST policy, the fine-tuning of the GST system, the implementation of the GST rate increase and the management of subsequent amendments to GST laws.
Hwee Leng is a lecturer of the GST courses at the Singapore Tax Academy. She also advises on Singapore's free trade agreements (FTAs). Hwee Leng is a regular contributor to International Tax Review and KPMG's international indirect tax publications. International Tax Review named Hwee Leng as one of Singapore's leading tax advisers in 2013.