IRAS Recovers $175 Million in Penalties for GST Non-Compliance
The Inland Revenue Authority of Singapore (IRAS), the authority mandated to enforce the Goods and Services Tax (GST), recovered a whopping $175 million over the past nine months in unpaid GST and accompanying penalties for non-compliance. This major haul is a reflection of the IRAS’ increased crackdown on violators.
Every business and individual that earns over $1 million per year is required to register for GST. The business’ director should file accurate tax returns every business yearly. Non-compliant businesses usually incur about $100,000 in GST recovery and penalties. About 100 non-compliant businesses are prosecuted every month, and this number is rising.
Using Data Analytics to Identify Non-Compliant Businesses
IRAS has been developing a data analytics program to identify businesses that fail to comply with GST laws. By using advanced technology, the authority has been analyzing a vast repository of local businesses’ data and identifying more violators than ever before. IRAS has launched more than 2,000 investigations involving GST fraud since January. 53 of those cases involved GST evasion, and while 20 of the cases have already been charged, only 14 have been convicted.
Traits of Common Non-Compliant Businesses
IRAS has observed that most of the businesses that are non-compliant with GST laws share certain traits. It is usually sole-proprietors and family-run businesses that are mostly non-compliant. Three common traits among these businesses are:
- Weak internal controls
- Hefty cash transactions
- Poor bookkeeping
Case Example: Funeral Homes
Most funeral homes are family-run businesses, so the industry makes for a good case example. Family-run businesses are run by multiple family members who often share roles. Their accounting and book-keeping methods are crude at best. In the case of family businesses, transactions are made in cash, and there is little accountability and record-keeping. This can go on for years and generations as the business (and the poor management) is handed down the family chain.
On 17th September 2019, the IRAS launched a multi-pronged investigation into three funeral home companies in the country. The investigators confiscated the suspects’ business records, phones, SIM cards, and computers. Investigators have narrowed their investigations to ten locations and 16 suspects who are currently helping with investigations.
One case, in particular, was successfully prosecuted over the past year. One funeral operator was accused of suppressing his trade income to keep it under the $1 million mark. The operator was charged and slapped with hefty fines. The business was also obliged to pay all GST taxes evaded since it first reached the $1 million mark. In a related case, a tax agent was charged and fined $80,000 for helping a client evade paying GST by doctoring financial records to stay below the $1 million annual income threshold.
New Initiatives to Improve GST Compliance
As mentioned, GST-registered businesses are required to file their tax returns every year. This is one of the initiatives undertaken by IRAS to make it easier for businesses to comply with GST laws. This new initiative was established on 1st January 2019. Before that, businesses were required to file their tax returns quarter-yearly.
The IRAS has also acknowledged that it is difficult for some businesses to do the math. In response, it has designed a new calculator designed specifically for tax returns calculations. The calculator is easy to use and can run on a smart phone and on the web. Most notably, the calculator determines which sources of income are taxable. However, users are required to select the specific source of income and submit a correct figure. Finally, the calculator redirects directly to the Tax Portal to finalize the returns.
IRAS has also taken a softer stance on violators who disclose their violations voluntarily. They face lower penalties and a softer justice system. However, those businesses are still required to pay the full GST amount since the time their income first surpassed the $1 million mark. A fine of 10% of the GST amount may also be imposed.
Tips to Stay Compliant with GST Laws
The hefty fines that have recently been slapped on GST violators are a warning to taxpayers to comply or face prosecution themselves. As such, it is important to take the necessary measures to be compliant with the law. Here are some tips to get you started:
1. Keep Accurate and Detailed Records
ACRA, IRAS, and other regulatory authorities are very stern about businesses’ financial records. This is why every business should keep detailed and accurate financial records of all their transactions. Besides, it is only prudent for a business to practice proper book-keeping. Good book-keeping culture will help you know when you hit the threshold and determine exactly how much you should pay in taxes.
Fortunately, IRAS has developed a new calculator that makes it easier to get your accounting right. You can do your math using the specialized GST Registration Calculator to determine whether you are liable for taxation.
2. Register as Soon as You Hit the $1 Million Threshold
As long as you earn over $1 million per year and are not registered for GST, you deny the government revenue in taxes. This is why it is necessary to get registered as soon as you reach the threshold.
Remember, if you fail to pay GST taxes, you will not only be penalized but also forced to pay the overdue taxes all at once. This can be financially destabilizing.
3. Hire an Accountant
It is understandable that not all businesses can afford the services of a professional accountant. However, you can still avoid mishaps by at least getting an accountant to verify your books. You will need to keep proper records that the accountant can use when verifying your books. At the end of the day, the cost of a temporary accountant is much lower than the costs incurred in fines and penalties.
Mr Lawrence Eng has personally called for taxpayers to comply with the law and help authorities combat willful fraud. He also promised severe penalties for any violations of the law.
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