SINGAPORE: Parliament passed several updates to the Goods and Services Tax (GST) Act on Tuesday (Nov 3), including giving tax enforcement officers greater powers to seize goods when investigating tax crimes.
New measures to counter a fraud scheme used by syndicates, known as the missing trader fraud, were also introduced as part of the amendments aimed at safeguarding public funds and investigating tax offences.
Introducing the amendment Bill for a second reading in Parliament, Second Minister for Finance Lawrence Wong said the enhanced powers will allow “specially authorised” officers from the Inland Revenue Authority of Singapore (IRAS) “to seize or prohibit the disposal of or dealing in any goods suspected or intended to be used to commit an offence under the GST Act”.
The seizure powers also cover goods that may help in the investigation or prosecution of such an offence.
“This prevents syndicates from using the goods to perpetuate fraud and it is an important measure in disrupting the operations of fraud schemes,” he said.
COUNTERING MISSING TRADER FRAUD
There was also a need to ramp up measures to deter the occurrences of missing trader fraud.
In Singapore, all GST-registered businesses are required to charge GST when they sell goods or services – known as the output GST – and pay this to IRAS.
GST-registered businesses who incur GST on their purchases of goods and services may claim a refund of this GST from IRAS. This is known as the input GST claim.
A missing trader fraud happens when a party who has collected output GST and is supposed to pay it to IRAS absconds, while other parties in the supply chain continue to make input GST claims on purchases they had made.
This is a fraud scheme typically used by syndicates.
“Syndicates make the detection of missing trader fraud difficult by interposing many businesses along the chain to deter IRAS from tracing back to the missing trader,” said Mr Wong.
He added that there have been “multiple attempts” to defraud tax authorities with this scheme in other jurisdictions such as Europe, as well as in Singapore.
For instance, this fraud scheme has cost the European Union (EU) around 60 billion euros in tax losses annually, rendering it the bloc’s “priority crime areas”.
In Singapore, more than 300 GST-registered businesses have been suspected of being involved in missing trader fraud as at end-2019, with the total tax amount at S$450 million, Mr Wong said in response to a question from Workers’ Party Member of Parliament (MP) Louis Chua.
IRAS has completed its audit and investigation for about 70 of these businesses which account for about S$90 million in GST, he added.
“The remaining businesses are still under investigation and so the GST at risk of loss … is S$360 million,” said the minister.
“It is not at the same scale as the EU but we see the trends internationally. We are concerned and that’s why we are putting in place these measures.”
Currently, businesses which IRAS have found to be involved in missing trader fraud will have their input GST claims denied.
The amendments to the law will introduce three measures.
Firstly, the comptroller of GST will have the right to deny an input GST claim if it thinks the business “knew or should have known” that its purchase was part of a fraudulent arrangement.
The burden of proving the latter lies on the comptroller, said a factsheet from the Ministry of Finance. Businesses may apply for a review and revision if they disagree with the comptroller’s decision. Further appeals can be made to the GST Board of Review.
Secondly, a business denied of its input GST claim due to the above will be slapped with a 10 per cent surcharge.
This surcharge, which is applied to the amount of input GST denied, serves as a deterrent effect and the quantum will be reviewed periodically, said Mr Wong.
Thirdly, the comptroller will be allowed to impose conditions on a business which is required to register for GST, deny a GST registration or cancel GST registration if there is a breach of any of the conditions.
Mr Wong said it is “important” to stop missing trader fraud “from being attempted across the value chain in the first instance”.
It is also “critical” that all GST-registered businesses undertake adequate and appropriate due diligence checks to avoid being in a fraudulent arrangement, he added.
COMPLIANCE WOES FOR SMALL SMES?
MPs who rose to speak on the Bill had concerns about the impact on small- and medium-sized enterprises (SMEs).
Mr Chua, MP for Sengkang GRC, pointed to the conditions under which a business knew or should have known it was part of a fraudulent arrangement. These include whether there was a “reasonable risk” of fraud and if “reasonable steps” were taken to ascertain that.
“However, even if the taxable person had taken reasonable steps (and) arrived at the wrong conclusion, it does not spare the taxable person from being taken that he should have known that arrangement was fraudulent,” he said.
This would be “potentially onerous” on companies, especially SMEs, who may not have the capabilities to conduct extensive due diligence as compared to their bigger counterparts.
“Codification” of what the reasonable person or reasonable steps mean would thus be critical for SMEs to not fall foul from new requirements,” said Mr Chua.
Echoing that, People’s Action Party MP Louis Ng said what constitutes a reasonable step for a big firm could vary from that of a small business given the differences in resources and capacity for checks.
He also asked if training and industry-specific resources will be provided for smaller businesses to conduct their due diligence, as well as the key considerations that will be taken into account by the comptroller when evaluating a company’s involvement in fraud.
Mr Wong said an e-tax guide, which will include examples of risk indicators that a business can watch out for and corresponding due diligence checks, will be published by IRAS “soon after the Bill comes into force”.
The tax authority will also work with industry associations to conduct dedicated outreach sessions.
In addition, the comptroller will take into account all the facts and circumstances of each case, including the firm’s status as an SME “where relevant in considering what is reasonable”, Mr Wong added.
OTHER REVIEWS OF GST REGIME
Authorities also made five other changes as part of its periodic review of the GST regime “to clarify technical rules and improve on GST administration”.
This includes a clarification on the treatment of claims in relation to overpaid or erroneously paid GST.
Currently, the GST Act allows a person to claim for a refund in such instances.
With the amendment, such claims must be made to IRAS within five years, and will also be applicable to overpaid or erroneously paid GST on imported goods.
More will also be done to encourage taxpayers to tap digital services, which will allow them to get refunds in a faster manner.
“The MOF will be allowed to prescribe in subsidiary legislation that refunds of GST are to be made by the comptroller of GST to GST-registered businesses via electronic means,” said Mr Wong.
An assessment of the readiness of GST-registered businesses will be made in 2021. Exceptions will be provided where needed, the minister added.