avoiding common gst errors (may 2012)

8/12/2019 Avoiding Common GST Errors (May 2012)

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Inland Revenue Authority of Singapore | 55 Newton Road Revenue House Singapore 307987 | phone 1800 3568633 | fax 6351 3553

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Avoid Costly

GST Errors

GST registered businesses are responsible for the properaccounting of GST. Where they make errors in reporting thecorrect GST amount to IRAS, they may face penalties,particularly when errors are uncovered during IRAS audits.

However, you can avoid such costly penalties if you exercisegreater care when filing your GST returns. You should alsoperiodically review your past GST returns to uncover and rectifyerrors in a timely manner.

To help you fulfill your tax obligations, we have compiled a list ofcommon GST errors that businesses should seek to avoid.

Zero-rated Supplies errors

Wrongly zero-rateddue to:

Service provided not eligibleas international service

under section 21(3) of the

GST Act

Export of goods not

evidenced by required

documents

Taxable Purchases and Input Tax errors

Wrongly claimed input taxon:

Invalid supporting documents or absence of tax invoice or import permit

Non-business expenses or expenses incurred directly for the making of exempt supplies

Medical, insurance, car and other expenses disallowed under Regulations 26 and 27 of the GST (General)

Regulations

Standard-rated Supplies

and Output Tax errors

Omitted output taxfor: Sale or disposal of business

assets

Goods given free as gifts

Trade-in transactions

Recovery of expenses

Exempt Supplies errors

Incorrect reporting of

exempt suppliesfor:

Exchange gain / loss

Interest received
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Recovery of expenses

When you recover the expenses from another party (e.g.

your subsidiary or customer), whether GST needs to be

charged on the re-billed amount will depend on whether

the recovery of expenses is a reimbursement or

disbursement.

Disbursement is not subject to GST. You do not charge

GST on a disbursement i.e. where you are merely

recovering costs from having made payment on behalf

of a third party. The goods or services you have paid forwas acquired directly by the third party in his own name.

Your recovery of costs from a third party cannot be

treated as disbursementif:

You acquire the goods or services and incur the cost

as a principal. This occurs when:

- you contract for the supply of goods or services in

your own name or capacity;

- you are legally obliged to paythe supplier of the

service or goods; AND

- you receive the goods or services or the benefits

of the goods or services directly from thesupplier.

The goods or services are used or consumed by you

in the course of making your supplyto a third party

You must charge and account for GST on the recovery of

expenses if it does not qualify as a disbursement.

Sale or disposal of business assets

You must account for output tax on the consideration

(e.g. money) receivedwhen you sell or dispose of your

business assets (e.g. office furniture or equipment,

factory machinery, non-residential property).

If your assets have market value and you dispose of it

for free, it is a deemed supplyand output tax must be

accounted for on its open market value (OMV) of the

assets.

Goods given free as giftsSimilarly, when you give away goods for free to your

customers or employees, you must account for output

tax on the gift.

Prior to 1 October 2012, you are required to account for

output tax based on the OMV of the free gifts of

goods/assets except when:

The cost of the gift or goods is not more than $200

and it does not form a series of gifts*; or

You were not entitled to claim input tax on the

purchase or import of the goods.*Series of giftsrefers to a situation where 3 or more gifts

(regardless of value) are given to the same person within a period

of 3 months. Gifts purchased from non-GST registered persons

must also be taken into account.

Standard-rated Supplies and

Output Tax


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Trade-in Transactions

A trade-in transaction is treated as 2 separate supplies

for GST purposes.

You must charge GST on the full selling price of the

goods you traded in and not on the net difference only.

Sale or disposal of business assets / Goods

given free as gifts

With effect from 1 October 2012, you are required to

account for output tax based on the OMV of the free gifts

of goods/assets except when:

The cost of the gift or goods is not more than $200; or

No credit for input tax was allowed* on the purchase

or import of these goods.

*If the GST on the supply of the goods to you has been suspended

(e.g. goods imported under Major Exporter Scheme), the GST

suspended is treated as input tax allowed to you.


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DO NOT REPORTin GST

Returns:

Out-of-Scopesupplies (i.e.

sale of goods from country

outside Singapore to

another country outside

Singapore)

Non-taxable purchases

(i.e. purchases made from

non-GST registered

suppliers)

DO NOT CLAIM thefollowing input tax

specifically disallowed

under Regulations 26 and

27 of the GST (General)

Regulations:

Club subscription fees

(including transfer fees)

Staff medical expenses

and medical and accident

insurance premiumsunless they are obligatory

under the Work Injury

Compensation Act or

under any collective

agreement within the

meaning of the Industrial

Relations Act;

Benefits provided to the

family members or

relatives of your staff;

Costs and runningexpenses of a motor car;

and

Any transaction involving

betting, sweepstakes,

lotteries, fruit machines or

games of chance.

Taxable Purchases and Input TaxGeneral Conditions for claiming Input Tax

The goods or services must have been supplied to youor the goods have been imported

by you;

For local purchases

The claim must be supported by tax invoices or simplified tax invoicesaddressed to

you.

For imports

The claim must be supported by import permitsshowing you as the importer of the

goods.

The goods or services are used or to be used for thepurpose of your business. They

must not be for:

Purely private or personal activities

Free activities provided without commercial reasons

Activities with non-business objects in the philanthropic, religious, political, or public

domain

The input tax is directly attributable to taxable supplies. It must not be incurred for

exempt supplies.


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Zero-rated Supplies, Exempt Supplies,

Taxable Purchases and Input Tax

Zero-rated SuppliesNot all services provided to overseas customers or export of goods can be zero-

rated (i.e. charge 0% GST).

You may zero-rateyour supply only if your:

Services qualify as international services underSection 21(3) of the GST Act.

- See www.iras.gov.sg> GST > For GST-registered businesses > Charge &

Claim GST > When to charge 0% GST > Providing international services

Goods are exported or hand-carried out of Singaporeand evidenced by the

required documents within 60 days from the time of supply.

Exempt SuppliesThe two main types of exempt supplies are the provision of financial servicesand

the sale / lease of residential properties.

Common errors of exempt supplies are:

Wrongly including the value of unrealised exchange gain or loss. Only the net

realised exchange gain or lossneeds to be reported.

Wrongly reporting interest received from an overseas entity (e.g. overseas

bank) as exempt supply. Such interest should be a zero-rated supply as it

qualifies as an international service.


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Managing Compliance throughGST Assisted Self-help Kit (ASK)

www.iras.gov.sg

To assist businesses in managing their GST compliance, IRAS has developed a self-assessment

compliance package known as ASK.

Businesses are strongly encouragedto adopt ASK to review the correctness of GST submissions and

discover past GST errors early to avoid or reduce penalties under IRASVoluntary Disclosure

Programme.

ASK focuses on 3 key aspects:

(i) GST Practicescomprising People, Record Keeping, Systems and Internal Controls to properly

handle GST reporting of transactions;

(ii) Pre-filing Checklistto ensure correctness of GST returns before submission; and

(iii) ASK Annual Reviewof past GST returns for early detection of errors.

See www.iras.gov.sg> GST > For GST-registered businesses >

GST Initiatives to Facilitate Voluntary Compliance > GST Assisted Self-help Kit (ASK)


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Useful e-Tax Guides

GST: Time of Supply Rules

GST: Guide on Hand-Carried Exports Scheme

GST: Partially Exempt Traders and Input Tax Recovery

GST: Clarification on Directly in Connection With and Directly Benefit

GST on Non-Business ReceiptsThe Business Tests and Effect on Input Tax Claims

GST: A Guide on Exports

GST: Fringe Benefits

GST: General Guide for Businesses

Please visit our website at www.iras.gov.sg to find out more information on GST

treatment applicable to your business and to download the relevant e-Tax guides.

avoiding common gst errors (may 2012)

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