Singapore GST Audit Guidelines: Key IRAS Compliance Risks & Penalties

Singapore's Inland Revenue Authority (IRAS) published guidelines on the key areas of compliance risks among taxable persons. The guidelines explain some of the most common frauds and errors and the consequences of such actions. 

Since the GST is a self-assessed tax, the IRAS underlined that it conducts regular audits to ensure that all taxable persons report and pay the correct amount of tax. Moreover, the audits aim to promote voluntary compliance, internal audits, and disclosure of any noticed errors in GST reporting or payment.

Key Compliance Risks and Consequences

As stated by the IRAS, the most common type of fraud is missing trader fraud, and taxable persons involved in such schemes are subject to extensive audit inspections and investigations. Additionally, taxable persons may be faced with withholding the payment of GST refunds if the Tax Authority reasonably suspects that the refunds relate to any input tax on any supply made to taxable persons that was a part of a fraudulent scheme.

Further consequences include denying the input tax on purchases, penalties of 10% on the amount of input tax claims denied, potential imprisonment of up to 10 years, and a fine of up to SGD 500,000 (around USD 386,000) for organizing or co-organizing the fraudulent activities. 

Besides missing trade fraud schemes, the IRAS developed a program for monitoring GST-registered businesses that have claimed low-value GST refunds to ensure compliance with GST rules and the legitimacy of refund claims. Therefore, IRAS may visit business premises to verify business operations and activities, review their documents and records, talk to key stakeholders, and mandate businesses to review their past filed GST returns and disclose any errors found.

The guidelines also include a list of the most common errors uncovered during audits to help taxable persons better understand where to look for mistakes, report them, and correct them voluntarily. Businesses that do not disclose voluntary errors or are found to submit false returns may face penalties of up to two times the undercharged tax and imprisonment.

Furthermore, the IRAS also inspects businesses that sell non-residential properties and GST-registered sole proprietors who have not accounted for the correct amount of supplies and output tax in their GST returns. Both groups of taxable persons are advised to conduct an internal audit and voluntarily disclose errors to IRAS to qualify for reduced or waived penalties.

Conclusion

Considering the seriousness of the prescribed penalties, taxable persons should conduct proper due diligence of business arrangements and scrutinise the legitimacy of their purchases more carefully to avoid participating in the missing trader fraud. Additionally, all taxable persons should review their books, records, and other tax-related documents, and in case they find anything suspicious or incorrect, voluntarily disclose the findings with IRAS to avoid severe penalties and fines, including imprisonment.

Source: Inland Revenue Authority of Singapore