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.

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 – – Edgar basically paraphrase/paragrapg the original article.

After ACCA and CPA, how to get CoC?

It was the first initiative announced by ACRA in April 2010. It is the introduction of the colour-coded compliance rating and issuance of the Certificate of Compliance.

How to get the Certificate of Compliance?
First get the GREEN tick. Green tick will be given only when a company complies with ALL of the following requirements as enunciated in the Companies Act, Cap.50 ie.

1. Hold its AGM once in every calendar year and not more than 15 months
after the last preceding AGM (section 175). For a new company, the period is 18 months after date of incorporation.

2. Provide the members/shareholders with the financial statements that is not more than 6 months old at the date of the meeting. For a public listed company the financial statements must not be more than 4 months old at the date of the meeting.

3. File its AR within 1 month from the date of the AGM (section 197).

Once your company gets the GREEN tick, you pay $5 for a copy of Certificate of Compliance. Failing to comply, you will get the RED cross. All the GREEN ticks and RED crosses will be displayed next to your business entities’ name for all to see in the free Directory of Business Entities.

What can I do with the Certificate of Compliance?
1. Show to banker to demonstrate that your company is behaving and ask for a discount on the interest costs.

2. Attached it to your resume as you present yourself to the next prospective employer as the key person in keeping the company neat and tidy.

3. Attached it to your performance appraisal as you discuss for a bonus.

4. Show to auditor. Try asking discount on ground that ACRA is certifying compliance already. No audit work is necessary there.

5. The auditors too can use the CoC to check on their prospects first before accepting appointment.

Good morning to you. Cheers

FASB and IASB to delay their marriage?

view from an office in Jakarta

Yes, there will be a delay of 6 months from the original date of June 30, 2011.

This is despite the fact that their family members from the G-20 group of industrial and emerging countries have been pushing them to stick to the original date since FASB and IASB announced their engagement in 2006.

So why the delay?

  1. Firstly, FASB cannot keep up the pace preparing for their marriage.

To meet the deadline, FASB and IASB would have to release about 10 proposals in the next two months and rushing through the due process of public comment, blah blah blah, reconsideration by the respective board and adoption.

2. Both FASB and IASB want their marriage only after aligning major areas of the accounting rules, such as revenue recognition, leases, financial instrument accounting and financial statement presentation.

3. FASB is 38 years old now but it has never worked so hard before in its life to get ready for the marriage. FASB has never released more than three or four proposals at a time for public comment.

4. FASB and IASB’s preparation were distracted by the financial crisis in 2008 and 2009. Both were forced to activate more resources to make changes to accounting rules related to the financial crisis. FASB dedicated one third of its 60 professional staff members during the crisis. IASB has a slightly smaller staff than the FASB.

Lessons from Raffles Town Club’s appeal

nearing completion?

In yesterday’s Today, it was reported that Raffles Town Club (RTC) has lost its arguments in the Court of Appeal on the following:-

  • failed to obtain tax deductions for the costs involved in leasing its land and in constructing the clubhouse on the ground that $108 million cost of acquiring the land from the State and the $91.4 million incurred in building the clubhouse were capital in nature and therefore
    not eligible for tax deduction;
  • secondly, it failed to have its membership fees taxed over 30 years, the life span of the club (this is an interesting attempt in defining the timing of revenue recognition and consequently, timing of taxability);
  • thirdly, it failed to secure relief for YA2001 from the tax department for the $53.28 million in damages it had to pay members after it lost the 2005 class action suit filed by several thousand members who claimed the club had falsely led them to believe they were part of an exclusive establishment and;
  • lastly, it failed to secure tax deductibility for the $2.34 million that RTC paid for geomancy fees.

Consequently, RTC is liable to pay tax for the Years of Assessment 1998-2003 on the full amount of $526.14 million it collected from its 19,000-odd members who had paid $28,000 each to join.

I have quoted verbatim the learning points from Justice Phang’s concluding remarks:-

  • “Where ordinary accounting principles run counter to the principles of tax law, they must yield to the latter for the purposes of computing gains and profits for tax.”
  • “Accounting and tax have different objectives in mind. Financial accounting is intended to provide information regarding firm performance to the market place while taxable income is prescribed by the government to meet budgetary needs … Regardless of how persuasive accounting evidence is, the prerogative still lies with the court to decide whether a particular item should be regarded as income that has accrued for the purposes of liability to tax.”
  • He pointed out that while accounting treatment focuses on the balance sheet, “taxation requirements are centred on the profit and loss accounts, so that the distinctions between revenue and capital, which are vital for tax purposes, may be lost in the accounting treatment”.
  • Concluding, he said: “I am also of the view that the present case turns on how well-established tax principles and tax law would apply rather than on the correct treatment of the items brought to tax.”

Budget 2010 – Productivity and Innovation Credit

It was announced in Budget 2010 that a Productivity and Innovation Credit (ie.“The Credit”) will be available for 5 years for Year of Assessment (YA) 2011 to YA 2015. The Credit will provide significant tax deductions for investments in a broad range of activities along the innovation value chain.

On such activities is investing in automation. Of course, IRAS defines “automation” as costs incurred to acquire “prescribed automation equipment” (e.g. laser printer, modem).

You would be entitled to 250% allowance for the first $300,000 of qualifying expenditure, 100% allowance for the balance expenditure.

Example: Laptop costs $2,000
Capital Allowance under the Credit = 250% x $2,000 = $5,000.

Taxpayer can either claim $5,000 as capital allowance in its tax return or opt to convert such capital allowances in respect of Laptop into a cash grant. The cash grant is computed at 7% of the capital allowance under the Credit ie. $350.

Question – Why the flexibility for you to choose to claim or to convert?
The simple answer is taxpayer should claim if it could help to save on paying 17% corporate tax and you should covert to cash if there is very little or no tax payable eg. for new company with exempt income.

Position available soon – IASB Chairmanship

wish you a roaring new year

I understand the current IASB chairman, Sir David Tweedie will stand down in June 2011 upon expiry of his contract. Headhunters have been activated to look for a successor. I am thinking about applying for the position. What are requirements of the job?

Sir Tweedie has spent a decade in transforming an obscure committee into a board whose rules are effectively law in over 120 countries, including the European Union. If I were successful in getting the job, I must be able to deliver at least another 120 countries within the same time frame. I am sure it will be one of many thousands KPIs. What are other possible things in store for me?

I will need to be a skilled diplomat and yet comfortable debating the intricacies of financial reporting with technical experts.

Diplomacy is necessary as you attempt to cajole acceptance of IASB rules that may not fit the respective circumstances of each member country.

I must always remember to express my gratitude to European Union for giving IASB the kick start it needed.

I must be able to appease the Americans of their fear of surrendering regulatory control over financial reporting issues to Europe and the rest of the world. [Just like why they are keeping United Nations in New York?]

Besides Europe and US, I must be able to give the remaining stakeholders in form of Asia, with rising economic powers, a voice in the making of the rules.

I must be nimble to be able to “siam” the pots, pans and shoes that could be thrown at myself if the world faces another financial crisis in the future and blame IASB for it. Just like what they did to “Fair Value”.

I had the pleasure of meeting him once from about 20 feets away. He gave such an entertaining speech fully peppered with typical British jokes ie. subtle yet effective. I will always remember the newspaper-in-the-highland-of-Scotland joke. Tell you when I see you.

In short, Stig Enevoldsen, chairman of the European Financial Reporting Advisory Group (EFRAG) said, ‘If you look at requirements for the new chairman, the only thing that is not included is that he should be able to walk on water.’

So assuming if Edgar can do all the above and can walk on water, he will definitely get the job entitled “Accounting Ayatollah” or “Accounting Czar”….

Current Tax Trends

Here are the current tax trends and their respective consequences as observed and explained by Lor Eng Min and Ang Lea Lea of Ernst & Young Solutions LLP:-

a) Increased information sharing among tax authorities of different countries
Businesses with operations over several countries would have to be careful in ensuring consistent information being given to the various tax authorities.
[Edgar – The same attitude should be adopted in providing information to various departments within a tax authority.]

b) Tax authorities sharpen their focus on large companies.
As many governments have incurred budget deficits in 2009, enhancing tax revenue collection could be a priority. By focusing on large companies, a significant portion of revenue could be collected very quickly while sending a signal to the rest of market to comply.
[Edgar – Given the advancement in technology and information availability, tax authority now has the ability to drill down and cross reference on companies, big and small.]

c) Shorter filing deadlines
In Singapore, the interval between filing of tax returns and the financial year end of company has been reduced substantially. If your company’s year end is Dec 31, 2009, you are to submit your Form C in Nov 2010. [Edgar – Secondly, companies are encouraged to submit Estimated Chargeable Income. Failing which, the authority may present its own preliminary assessment and tax is payable within a month.]

d) Timely and voluntary disclosure requirements
Incentives in term of lighter penalty are explicitly stated to achieve the above.

e) Transfer pricing documentation and Advanced pricing arrangements
Given complex costing and pricing issues between entities in a group, the Group is encouraged to seek a formal understanding on any inter-company arrangement with tax authority.

Reference – Singapore Accountant, Jan 2010.

OECD wants country-by-country tax reporting

after 10.15pm

Impacts of such a move:-
It would shake up how multinationationals present their accounts.
It aims to cut back tax avoidance and transfer pricing in developing countries.

Organisation for Economic Cooperation and Development (OECD) will present guidelines that could force MNCs to reveal profits and tax paid/payable in every country they operate in.

The MNCs are worried that the transparency will provide civil groups, citizens and governments of such countries in which the MNCs have operated / are operating in, may have been short changed in tax revenue.

As they are just guidelines for the moment, OECD is pushing IASB to formalise it.

Gan Oh Boon and Tax Exemption Scheme

A businessman, Gan Oh Boon, warmly embraced the idea from Chng Chor Tong, his auditor, of spreading the profits from his steel forming and rolling business over 6 new companies set up in 2004.

Law – The law exempts new companies from paying tax on the first $100,000 of chargeable income and partially exempted for the next $200,000.

Modus operandi
Company A signs management agreement with each of the 6 shell companies. The profit from Company A is evenly distributed to 6 companies by fictitious expenses (valued $1,6mio) with no work or services performed by the 6 shell companies for Company A.

The fictitious expenses were “correctly named” and comprised of commission fees, technical consultancy fees, marketing consultancy fees, engineering consultancy fees and management fees.

The said fees were for the work and services purportedly performed by the 6 shell companies. Even though these fees were reported as income by the respective shell company, the overall tax burden has been reduced substantially for the Years of Assessment (YA) 2005 to 2007.

What went wrong for Mr Gan in applying the law?
The tax exemption scheme under section 43(6A) of the Income Tax Act, which took effect from YA 2005, was introduced to support entrepreneurship and encourage growth of local enterprises.

But in my humble interpretation, the 6 shell companies are basically shells with no independent employees and resources carrying out its own economic activities.

You can’t just create companies to distribute the profits around!!!

What are the punishments?

  • For the company, a fine of $24,000 and a penalty of $988,933.58.
  • For Mr Gan Oh Boon personally, 2 weeks of imprisonment and a total fine of $8,000.
  • In default of payment of the fine, the default sentence would be 6 weeks of imprisonment.
  • He was also ordered to pay a total penalty of $988,933.58. In default of payment of penalty, the total default sentence would be 34 months of imprisonment.