Tax penalties from GST audits could increase as GST goes up
By Pearl Forss, Channel NewsAsia | Posted: 13 February 2007 2030 hrs

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SINGAPORE: With the Goods and Services Tax (GST) increasing by two percentage points, tax analysts said tax penalties arising from businesses making mistakes in GST audits may also increase.

GST was introduced in 1994 and the year after, the government collected S$3.3 million in tax and penalties from GST audits.

Last year, the figure was S$76.2 million, an increase of over 2,200 percent.

Tax analysts said one reason for this huge increase is because the Inland Revenue Authority of Singapore (IRAS) can no longer be lenient with businesses that make mistakes since it has been more than a decade since GST was introduced.

And with GST going up to 7 percent, analysts said businesses should pay more attention to GST accounting or they may end up paying more.

Tax analysts said that if businesses want to register for GST, they need to study if they have the capability to cope with the compliance cost.

Compliance cost comprises - the human cost and the IT cost, and this cost is generally higher for smaller businesses.

For human cost, it includes training of staff, in terms of how to apply the rules and when to apply GST to an invoice.

IT cost includes the cost of changing the billing and invoicing system, and the cost of maintaining proper records for the GST system.

A study commissioned by IRAS in 1995 showed that the average cost for a GST registered business was S$4,339 in the first year of implementation.

The average compliance cost as a percentage of turnover was 0.3018 percent for businesses with a turnover of less than S$1 million and 0.0086 percent for businesses with a turnover of more than S$50 million.

IRAS said errors in GST audits include claiming input tax, which is not allowed under the law - for example, the GST incurred on employees' medical fees.

IRAS said there have also been cases where companies wrongly zero-rate sales of goods to local persons which ought to be charged with GST, or zero-rate their sales without maintaining documents to prove export.

Sales of goods can only be charged with GST at 0 percent, or be zero-rated if they are exported. Documents such as export permits, airway bills have to be maintained to support such sales. If these documents are not in order, IRAS can charge a tax penalty.

IRAS said it conducts public education programmes for businesses.

This includes information on IRAS' website, seminars for newly registered traders, trade associations or industry groups when IRAS uncovers errors made which are specific to particular trades or industries.

But if they have further questions which cannot be answered by the taxpayer service centre or IRAS helplines, they will be charged a fee.

Koh Soo How, Tax Partner, PricewaterhouseCoopers, said: "According to new rules set by the government or proposed by the government, if there is uncertainty in application of the law, you can seek a tax ruling from the IRAS which will be binding on the IRAS and on the taxpayer.

"The unfortunate thing with that is, of course, they are also proposing that you will have to pay a fee in order to get a tax ruling. It still creates a bit of uncertainty for businesses as they are the ones that have to determine their own tax liability and yet, at the same time, they have to pay to seek clarification of the law."

Analysts also say corporate tax is likely to come down to 18 percent and this will hopefully more than offset the GST compliance cost. - CNA/so