GST-inclusive price

I have been paying attention to the numerous huge advertisements by the many industry players in the red hot lasik market in Singapore. Prices of lasik is definitely on a downtrend and possibility of hitting sub-$1,000 per eye for standard lasik is very real. (someone told me the limit has been breached already)

In today’s national paper, I notice a lasik provider has now included the GST-inclusive price of $2,341.16 into the advert albeit in a smaller font size.

In the heat of competition, perhaps many have forgotten the small detail of the need to place GST-inclusive prices.

What is the Law?
According to reg 77(1) of GST regulations, “where a taxable person publicly displays or advertises the price of any supply of goods and services he makes, or intends to make, it has to be the “GST-inclusive” price.

Any exception to this law must be approved by IRAS.

Edgar says…
While such taxable persons may not be sufficiently in tune with all details, I wonder whether the advertising agents or media owners should play a role in removing such “printing errors or omissions”.
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Cake or biscuit = GBP3.5m error

Situation

Under UK tax rules, most traditional bakery products such as bread, cakes, flapjacks and Jaffa Cakes are free of Value Added Tax (VAT).

But the tax is payable on some other items eg. cereal bars, shortbread and partly-coated or wholly-coated biscuits.

The confusion arose when the Authority is not sure when a CAKE is not a bread or when a BREAD is actually a cake etc etc etc….

Customers of Marks & Spencer in UK, who had been paying VAT for the last 20 years for a product called “teacakes” realised recently that VAT should not have been applied on the product. How come? The authorities have accepted the product was actually a cake, which does not command VAT!!! A mistake realised after 20 years.

Conclusion
This incident serves to explain why the Government has chosen not to heed calls from some quarters to apply a lower GST rate on necessities.

How to finance Development Expenditure?

What is Development Expenditure (DE)?
According to Ministry of Finance, DE refers to expenses that represents a longer term investment and result in the formation of a capitalisable asset of the Government.

How is DE financed currently?
Based on FY2007 Budget, $7.1 billion of total DE of $13.1 billion (ie. 54%) is financed out of current revenues, mainly taxes.

How should DE be financed according to Mr Basant Kapur?
Mr Kapur said most DE should be financed by borrowing. Exception – DE on military hardware which should be financed out of taxes.

What are the basis of Mr Basant Kapur’s position?
DE, as in any investments, would generate a return over time. The return should be measured by the incremental GDP contributed by the DEs. The interest servicing and loan capital repayment should be paid out of taxes on the incremental GDP.
Using current tax revenues to pay for future returns may have negative repercussions. Mr Kapur argued that the 2% GST increase may thus not be necessary if the DE were to be financed through borrowing, from internal sources or otherwise. The GST increase has resulted in higher than expected tax revenue which may curb consumption and fuel inflation.

In summary, we should not impose cost to the present when we are investing today for future benefits based on economists’ “efficiency argument”.

Who is Mr Basant Kapur?
He is a Professor of Economics and Director, Singapore Centre for Applied and Policy Economics, NUS.

Reference – Basant Kapur, “Better to borrow than raise GST”, Straits Times, 29 Feb 2008.

Destroying records and selling computer…

Png Yeow Leng, 35, pleaded guilty to 6 charges under GST Act when he faked transactions to claim $42,000 in tax rebates over 9 months to March 2005.

Nothing amazing about this so far.

The interesting thing is that he has the honour of being the first person in 14 years to be convicted of not keeping proper business records.

When the IRAS officers first attempted to commence investigation into his business dealings, he closed his shop, burnt its records and sold his computer to a karung guni man.

Under section 46(1) and (2) of the GST Act, a GST trader is required to keep business and accounting records, copies of all tax invoices and receipts issued by him and tax invoices received by him and to preserve such records for a period of not less than 7 years.
From 1 Jan 2007, you have to keep your records for 5 years.
Failure to do so is an offence. Under section 46(6), the offence is punishable with a fine not exceeding $5,000 or to imprisonment for a term not exceeding 6 months or to both and, in the case of a second or subsequent conviction, to a fine not exceeding $10,000 or to imprisonment for a term not exceeding 3 years or to both.

GST for Gold trading could be different

Under normal circumstances, GST is to be accounted for at the earliest of the following events:-

  • date when goods are delivered or made available to your customer;
  • date when payment is received; or
  • date of issuance of invoice.

But when it comes to trading of gold where the prices are dependent on fluctuations in the market for a period of 90 days.

The law allows that the invoice to be issued on the 90th day with the price determined by (assuming the seller has not received any payment),

  • buyer/seller; or
  • otherwise based on the open market value prevailing on that day.

This method of accounting is only peculier to sales of gold jewellery.

GST – Residential Building Project

There is no doubt that you have to charge GST for construction services done for both residential and commercial properties.
Zero-rated if it is done on properties outside Singapore.

Situation
You are the GST-registered sub-contractor appointed to do the tiling and flooring works for a project eg. total value is $20,000 (excluding GST).

Your GST-registered main contractor will supply you the tiles eg. valued at $8,000 (excluding GST).

How could you do the billing?

Solutions
Option 1 – Invoice the main contractor on the net value ie. ($20,000 less $12,000) $8,000 + $560 GST.

Option 2 – Invoice main contractor for the total value of contract ie $20,000 + $1,400 GST. Main contractor would then invoice you for the tiles supplied ie. $12,000 + $840 GST.

P/S – Adapted from article in ST Feb 6, 2008.

Do you DARE to go to trial on tax evasion?

If you have been charged by IRAS for tax evasion, would you accept the accept the charges and submit yourself to whatever punishments befitting OR would you seek your justice in court? What did Mr Looi, our famour curry puff entrepreneur do under similar circumstances?

For income tax offences

Section 96 and Section 96A provide for statutory presumption which relieves the prosecution from having to prove an intention to evade tax, the very hallmark of tax evasion.

Where a false statement is found to have been made in the taxpayer’s return, accounts or records, this is considered proof of an intention to evade tax.

You can try to challenge the presumption by having the burden of to disproving the presumption in trial.

For GST violations,

The advantage is also with IRAS, the plaintiff / prosecution. The defence ie. the alleged violators, would have to prove its case beyond reasonable doubt.

Concluding remark

To date, very few persons charged with tax evasion have been brave enough or not foolish enough to seek justice in court.

As for our Mr Looi, he pleaded guilty with any legal representation.

Mr Sharma, a partner of KhattarWong rallied the authority to level out the playing field ie. BOTH prosecution and defence are required to prove their case in court.