Unusual treatment for UnUsUal Entertainment

multi million dollars from entertaining you

What is the law?
GST-registered businesses must charge GST output tax on the sale of their goods and services at the prevailing GST rate and account accurately to IRAS.

What happened?

IRAS found out that UnUsUal Entertainment (“UnUsUal”) had wrongly declared or “under declared” its output tax for 2005 and 2006. UnUsUal had not included the GST collected on tickets sales for both years as output tax in its GST returns.

How did IRAS find out?
This is the interesting part. IRAS found that sales figures submitted by UnUsUal for income tax purposes did not tally with the sales figures reported for output tax for 2005 and 2006. For example, the sales revenue declared for 2005 income tax was $9,136,361.00, against the $2,810,668.00 declared as total sales in their GST returns in the same year.

The conviction demonstrates the effectiveness of inter-departmental sharing of information.

What is the side issue?
The GST submission and income tax computation was done by its tax agent. The case also reminded us that it was clearly stated that the responsibility of accounting for GST on ticket sales lies with taxpayer. However, UnUsUal failed to check the GST returns prepared by its tax agent, which resulted in incorrect tax returns.

What is the penalty?

UnUsUal was found guilty of wrongly stating the output tax in its Goods and Services Tax (GST) returns, resulting in an underpayment of $502,922.27 in GST.  UEPL was ordered to pay a penalty of $601,632.72 and a fine of $10,000.

UEPL pleaded guilty to four charges of under-declaration of GST without reasonable excuse.  Four remaining charges were taken into consideration for sentencing.

Adapted from IRAS Media Release.

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Zero GST for basic goods?

food n price to be paid

On Jul 8, 2011, Dr Mukul Asher, my ex-lecturer of welfare economics in NUS back in 1980s, was asked to answer the questions as follows.

  1. What would be the effect of implementing a zero percent Goods and Services tax for basic commodities?
  2. Would it help to lower the cost of living for lower income families in Singapore?

Firstly, he uniquely used the term “basic commodities” while the article is entitled “… basic goods”. I generally interpreted “basic commodities” as totally unprocessed or barely prossessed raw materials. Consequently, he said GST’s orientation would change to tax on value added at manufacturing, wholesale and retail levels. Example – No GST is to be applied on $5 of carrot and $4 of flour imported. When the carrot and flour became a $25 carrot cake, GST is to be applied on $16 value added. He opined that this system would increase cost of administering the tax by authority and compliance costs by businesses. He didn’t elaborate as to how it could be so. Alternatively we could consider the Australian’s where its GST free supplies include health, education, childcare, religious services, certain foods etc.

Secondly, he concluded that GST revenue would drop due to exemption of basic commodities and prompting higher GST rate. Currently we apply GST on almost on goods and services with government sending cheques with GST rebates to selected individuals to offset regressive tax burdens (a system I am in favour with). So when we compare the two methods in totality, will there be a significant change in collection? Which is more efficient and effective?

Thirdly, Dr Asher applied the basic economic concepts of substitution effect on demand and price when he said households would switch demand from “GSTed” items to “non-GSTed” basic commodities leading to an increase in prices of the latter. This also assume supply of basic commodities would generally be unresponsive. Too simplistic an assumption?

As Dr Asher is a professor of public policy at Lee Kuan Yew School of Public Policy, I am sure he has done much more in depth studies and thinking on the issues but the article is too simplistic with conclusions only given cursory elaboration.

Reference – ASHER, Mukul, “Zero GST for basic goods? Bad idea.”, The Straits Times, July 8, 2011.

When do your business need to register for GST under new rules?

Under the new GST – Time of Supply Rules effective Jan 1, 2011, there is no more prospective and retrospective test that we used to do.

Under the new law, the time of supply for most transactions will be triggered by the earlier of the following two events:-
a) when payment in respect of the supply is received; and
b) when invoice in respect of the supply is issued.

Consequently the rules to determine when a business need to register for GST would have to change too.

Suppose Company performed and completed only 2 transactions in the year 2011. Each transaction is $600,000.

One transaction has been invoiced and paid. The other transaction, while completed, has NOT been invoiced nor paid as at Dec 31, 2011.

The value of supply made in 2011 under the new rules is only $600,000/-. Therefore company’s liability to register has not yet arisen on Jan 1, 2012.

Biggest GST fraud in Singapore

$5,695,823.65 being the tax undercharged.
Then multiply that amount by 3 to arrive at $17,087,470.95 penalty payable.
In return for that “contribution”, the person responsible gets 54 months of free food and free lodging in prison.

Who gets such “honours”?
The man is none other, Mr Mahesh Sukhram Daswani.
He was in the business of trading mobile phones. He subsequently found it more lucrative to “manage” (ie. forge) his business records very aggressively.

First;y, he under reported his sales ie. collected output GST from his customers and decided to keep a lot for himself.
Secondly, he kept himself busy with creating detailed but “fictitious” purchases. He probably used photoshop (just kidding) to digitally alter zero-rated suppliers’ invoices to standard-rated. He then directed his staff to include those invoices in the quarterly claims.
Thirdly, he had to go create export documents to show that the mobile phones had been exported. Export sales, remember is zero-rated. I guess he was trying to show how he was able to dispose off millions of dollars of phone purchased.

The trickeries of Mahesh are not new but definitely not sustainable.

1. IRAS would definitely be paying attention to who have been issued millions of dollars of refund cheques. A request for audit of the respective taxpayers’ books would be good practice.
2. In the press release, it was specifically highlighted that IRAS has used a lot of technologies to nab Mr Mahesh. Phrases such as “advanced computer forensics techniques”, “computerised analysis programmes” and “specialised computer forensic tools” were deliberately informed to public. Perhaps IRAS colleagues have exchanged notes with their colleagues in Commercial Affairs Department.

The moral of the story (as always) – Please don’t try to muck around with your GST returns.

Company director jailed for GST fraud

What happened?
Tang Ee Boon (“Tang”), 32, the managing director of V-Teb Services Pte Ltd (“V-Teb”) was convicted of GST fraud amounting to $327,837.49 and was sentenced to 12 months’ jail. Tang was brought to court for 21 charges of making inflated and false claims of GST refunds for the period 1 Jan 2004 to 30 Jun 2007.

Rule
GST-registered businesses can offset the GST they pay on their purchases (input tax) against the GST they collect from sales (output tax), and pay the net difference to IRAS. If a business incurs more GST on purchases (input tax) than it collects from sales (output tax), it can claim the difference as GST refund from IRAS.

What went wrong for Tang’s ploy?
V-Teb provides cleaning services locally. By nature of his business, the company is not expected to claim GST refunds.

However, IRAS’ tax auditors noted a pattern of submitting increasing amounts of GST refund claims in the GST returns on a frequent basis. IRAS actually verifies the value of V-Teb’s taxable purchases with the alleged suppliers.

What did Tang get for his mischiefs?

Tang pleaded guilty to a total of 14 charges of evading GST,

  • comprising three charges of understating output tax,
  • eight charges of overstating input tax, and;
  • three charges of making false entries in V-Teb’s GST returns.

In addition to the jail term, the court also ordered Tang to pay a penalty of $983,512.47, which is three times the amount of GST undercharged.

Source – http://www.iras.gov.sg – Edgar basically paraphrase/paragrapg the original article.

GST on Donation

In BT dated June 4, 2008, Wong Sze Teen and Yeo Kai Eng also discusses the implication of GST on donations.

What is the Rule?
Generally, no GST on CASH donations if the amount involved is small and no tangible benefits granted to Donor.

But when Donors are entitled to some form of benefits ie. chance of a lucky draw to win a trip to Timbuktu, technically speaking such donations attract GST.

IRAS Concessionary Exemption is granted to certain benefits if:-
– the benefit is given as part of acknowledging the donation made and;
– the benefit has no resale value.

Thus certain acts by the Recipients, which are technically speaking, benefits to the Donors, are exempted. Eg. Donors could be invited to and honoured at a Gala Dinner held in conjuction to the Charity.

What if your GST-registered business gave a donation in kind?
Donor has to account for output GST on deemed supply except if:-
– less than $200 and;
– is not part of a series of gifts.

The GST trap of Sponsorship, Grant and Donation

such beautiful mature bamboo

In BT today, Wong Sze Teen and Yeo Kai Eng, GST experts from Ernst & Young, wrote an article on the implication of GST on sponsorship, government grants and donation.

I will cover issues on sponsorship and grants first.

Situation
Company X gives $1,000,000 to Company Y as sponsorship for a certain event that Company B is organising. Assuming both are GST-registered.

What is the Rule?
IRAS said sponsorship will not attract GST if company X:-
– did it voluntarily without any obligation and;
– did not receive any tangible benefits in return.

Failing which, company Y would have to issue a GST-tax invoice to company X.

For what amount should the invoice be issued on?
Answer – It depends on the market value of the benefits company Y would have to give to company X.

If market value of benefits < $1,000,000 eg. $800,000, company Y would have to issue an invoice for $800,000 inclusive of GST. Thus company Y would have to account for output GST of $52,236.45 to IRAS. Company X could then account for input GST of the same amount.

Any difficulty?
Firstly, when is a benefit given is considered a benefit given?
Secondly, company Y would have to determine the market value the benefits granted.

Government Grants
Generally and simply said – Attracts no GST to both the Giver and Recipient.