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SINGAPORE: On Tuesday (November 3), parliament approved several updates to the Goods and Services Tax (GST) Act, including granting greater powers to tax law enforcement officers to seize property when investigating tax crimes.
New measures were also introduced to counter a fraud scheme used by unions, known as the missing merchant fraud, as part of the amendments aimed at safeguarding public funds and investigating tax crimes.
Introducing the amendment bill for a second reading in Parliament, Second Finance Minister Lawrence Wong said the enhanced powers will allow “specially authorized” officials of the Internal Revenue Authority of Singapore (IRAS) ” seize or prohibit the alienation of any suspicious property or property intended to be used to commit a crime under the GST Law ”.
Seizure powers also cover property that can assist in the investigation or prosecution of such a crime.
“This prevents unions from using assets to perpetuate fraud and is an important measure to disrupt the operations of fraud schemes,” he said.
AGAINST FRAUD OF LOST TRADERS
Measures also needed to be stepped up to deter cases of missing merchant fraud.
In Singapore, all GST registered companies are required to charge GST when they sell goods or services, known as outbound GST, and pay it to IRAS.
GST-registered businesses that incur GST on their purchases of goods and services can claim a refund of this GST from IRAS. This is known as an entry GST claim.
A missing merchant fraud occurs when a party that has collected outbound GST and is supposed to pay it to IRAS leaks out, while other parties in the supply chain continue to make inbound GST claims on purchases they had made.
This is a fraud scheme commonly used by unions.
“Unions make it difficult to detect missing merchant fraud by bringing many companies along the chain to deter IRAS from tracking down the missing merchant,” said Mr. Wong.
He added that there have been “multiple attempts” to defraud the tax authorities with this scheme in other jurisdictions such as Europe, as well as in Singapore.
For example, this fraud scheme has cost the European Union (EU) around 60 billion euros in tax losses per year, making it the bloc’s “priority crime areas”.
In Singapore, more than 300 GST-registered companies were suspected of being involved in missing merchant fraud at the end of 2019, with a total tax amount of S $ 450 million, Wong said in response to a question from a member. of the Parliament Workers Party (MP) Louis Chua.
IRAS has completed its audit and investigation for approximately 70 of these companies representing around S $ 90 million in GST, he added.
“The remaining businesses are still under investigation, so the GST at risk of loss … is S $ 360 million,” said the minister.
“It is not on the same scale as the EU, but we see the trends internationally. We are concerned and that is why we are implementing these measures ”.
Currently, entry GST claims from companies that IRAS has determined are involved in missing merchant fraud will be denied.
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The amendments to the law will introduce three measures.
First, the GST controller will have the right to deny an entry GST claim if he believes the company “knew or should have known” that your purchase was part of a fraudulent arrangement.
The burden of proving the latter rests with the comptroller, said a fact sheet from the Finance Ministry. Companies can request a review and revision if they do not agree with the controller’s decision. Further appeals can be made to the GST Review Board.
Second, a business that is denied its entry GST claim due to the above will be assessed a 10 percent surcharge.
This surcharge, which is applied to the denied GST entry amount, serves as a deterrent effect and the amount will be reviewed periodically, Mr. Wong said.
Third, the controller may impose conditions on a company that must register for the GST, deny a GST registration, or cancel the GST registration if any of the conditions are breached.
Mr Wong said it is “important” to prevent lost merchant fraud “from being attempted down the value chain in the first place.”
It is also “critical” that all GST-registered companies conduct proper and appropriate due diligence checks to avoid being in a fraudulent deal, he added.
COMPLIANCE ISSUES FOR SMALL SMEs?
Parliamentarians who rose to speak about the bill had concerns about the impact on small and medium-sized enterprises (SMEs).
Mr. Chua, a Sengkang GRC deputy, pointed out the conditions under which a company knew or should have known that it was part of a fraudulent agreement. These include whether there was a “reasonable risk” of fraud and whether “reasonable steps” were taken to determine it.
“However, even if the taxable person had taken reasonable measures (and) reached the wrong conclusion, it does not prevent the taxable person from realizing that they should have known that the arrangement was fraudulent,” he said.
This would be “potentially burdensome” for companies, especially SMEs, which may not have the ability to conduct thorough due diligence compared to their larger counterparts.
Therefore, “coding” what the reasonable person or reasonable steps means would be essential so that SMEs do not violate the new requirements, “said Mr. Chua.
Echoing that, Popular Action Party deputy Louis Ng said that what constitutes a reasonable step for a large company might differ from that for a small company given differences in resources and checking capacity.
He also asked if industry-specific training and resources will be provided for smaller companies to carry out their due diligence, as well as the key considerations the controller will take into account when evaluating a company’s involvement in fraud.
Mr. Wong said that IRAS will publish an electronic tax guide, which will include examples of risk indicators that a company can take into account and corresponding due diligence checks, “shortly after the bill goes into effect.”
The tax authority will also work with industry associations to conduct targeted disclosure sessions.
In addition, the comptroller will take into account all the facts and circumstances of each case, including the company’s SME status “where relevant when considering what is reasonable,” added Mr. Wong.
OTHER REVISIONS OF THE GST REGIME
The authorities also made five other changes as part of their periodic review of the GST regime “to clarify technical rules and improve GST administration.”
This includes a clarification on the handling of claims in relation to GST overpaid or in error.
Currently, the GST Act allows a person to claim a refund in such cases.
With the amendment, such claims must be made to IRAS within five years, and will also apply to GST overpaid or in error on imported goods.
More will also be done to encourage taxpayers to take advantage of digital services, allowing them to obtain refunds more quickly.
“The MOF may prescribe in subsidiary legislation that GST refunds must be made by the GST controller to GST-registered companies through electronic means,” said Mr. Wong.
In 2021 there will be an assessment of the readiness of companies registered in GST. Exceptions will be provided when necessary, the minister added.
