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.

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?

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.

Different ways of getting whack for tax violations

S. Sharma, in today’s BT, who is now a partner at the law firm KhattarWong (but was senior legal officer at IRAS), highlighted the difference in how prospective tax evaders are being investigated, examined and prosecuted, depending on whether it is income tax OR goods and services tax (GST) violation.

What is the difference?

  • For income tax violations,

The IRAS conducts its own investigation, obtains approval from internally to institute the prosecution and conducts the proceedings in court without any talking to the Attorney-General or any Deputy Public Prosecutor.

  • For GST violations,

Under Section 69 of the GST Act, a prosecution for GST evasion requires the sanction of the Public Prosecutor alone, and not the Comptroller of GST, unlike income tax evasion.

Why the difference in treatment?

Is it because GST monies are deemed to be state assets “stolen” by the tax violators? Whereas income taxes are “contributions” from tax payers for nation building.

As to Mr Sharma, the “why” is not important. He has requested the relevant authorities to harmonise the difference.

Should my restaurant register for GST?

In a recent consultation with a new restaurant owner, he asked whether he should register for GST.

Here we are considering a voluntary registration ie. establishments with less than a million dollar turnover. The following discussion is strictly in the context of a restaurant business.

While GST registration relieves his restaurant from GST burden through recovery of GST incurred on business activities, it also require the restaurant to charge GST on their sales.

I advised him to review his suppliers of food items as they will constitute the bulk of costs and the percentage of total value of items with GST.

He also has to consider the impact of applying GST on his prices to customers. Are his customers price-sensitive? What is the impact to his bottomline if he decide to absorb the GST?

Thirdly, we have to consider the cost of compliance ie. preparation of GST returns every quarterly?

GST in your F&B bill

Dear friends,

When you makan at a restaurant, the restaurant will almost definitely hit you with a 10% service charge on actual F&B that you consumed.

Let us take a simple example.

2 steaks @$25 $50.00
A bottle of Cardonnay $40.00

subtotal (1) $90.00
10% service charge $9.00
subtotal (2) $99.00

How much is the GST payable?
Answer – 5% of ($90.00 + $9.00) = $4.95

Mrs Lee, Director of Corporate Communications, IRAS said GST is applied on the final value of goods or services (including any indirect taxes/duties) consumed in Singapore.

P/S – For those who have gone to a movie recently – can share how they calculate GST for your movie ticket?

Reference – Straits Times – Inbox – page 45, Nov 19, 2006.

Hong Kong drops sales tax

What is proposed?
5% sales tax that would raise HKD3.8bio per annum.

Why the drop?
Politically inconvenience. Sadly it reflects very poor planning.

What is the current budget situation in HK?
1. About 1/3 of income earners pay tax. Very narrow tax base.
2. They have been living admist budget deficits.

I wonder how have they been funding their budgets year in year out.
More land sales? How much more land you can sell?
More Disneylands? Oops.. that is certainly a costly exercise.

Any alternatives?

  • More “sin” taxes ie. on cigarettes and liquors. Maybe it is a good outcome afterall.
  • Capital gains tax – very painful for Hong Kongers as “buying and selling” is a favourite past time activity there.
  • More taxes on car – another possible good outcome of no sales tax – it would help with the smog.

I hope Hong Kongers will take action to avoid borrowing from the future generations and spend today.

GST – It is unfair to me.

Goods and Services Tax (GST) is a pay-as-you-consume tax.

So if I were to buy anything ie. anything until the day I die and buried, part of my cash is actually going to the government coffer.

Even if I were to buy from a non-GST registered retailers, he/she would charge a price that would cover the costs of its raw materials etc etc. As most of what we consumed are imported, GST is levied on these imports as they leave the ports.

All my expenses during my retirement will be funded by savings I am accumulating since I started work. These savings are derived from after-income-tax income.

Tax and tax on the same income?

Let say my income tax bracket is 10% and GST is 7%. I assume I spend every cent of my disposable income after tax. Let’s say, my annual income is $100,000.

$90,000 would be my after-income-tax income. 7% of $90,000 is $6,300.

I would have paid $16,300 in taxes for $100,000 income ie. 16.3%.

While this illustration is taking to the extreme, it serves to illustrate the importance of looking at your total tax burden over time.

I was looking forward to my retirement. But now I have to work harder as I have to protect my savings against normal inflation rate + a factor of GST.

So it now look that I will pay GST until all my funeral expenses are paid from my estate.