Friday, December 30, 2011

Unusual treatment for UnUsUal Entertainment

multi million dollars from entertaining you
What is the law?
GST-registered businesses must charge GST output tax on the sale of their goods and services at the prevailing GST rate and account accurately to IRAS.

What happened?

IRAS found out that UnUsUal Entertainment ("UnUsUal") had wrongly declared or "under declared" its output tax for 2005 and 2006. UnUsUal had not included the GST collected on tickets sales for both years as output tax in its GST returns.

How did IRAS find out?
This is the interesting part. IRAS found that sales figures submitted by UnUsUal for income tax purposes did not tally with the sales figures reported for output tax for 2005 and 2006. For example, the sales revenue declared for 2005 income tax was $9,136,361.00, against the $2,810,668.00 declared as total sales in their GST returns in the same year.

The conviction demonstrates the effectiveness of inter-departmental sharing of information.

What is the side issue?
The GST submission and income tax computation was done by its tax agent. The case also reminded us that it was clearly stated that the responsibility of accounting for GST on ticket sales lies with taxpayer. However, UnUsUal failed to check the GST returns prepared by its tax agent, which resulted in incorrect tax returns.

What is the penalty?

UnUsUal was found guilty of wrongly stating the output tax in its Goods and Services Tax (GST) returns, resulting in an underpayment of $502,922.27 in GST.  UEPL was ordered to pay a penalty of $601,632.72 and a fine of $10,000.

UEPL pleaded guilty to four charges of under-declaration of GST without reasonable excuse.  Four remaining charges were taken into consideration for sentencing.

Adapted from IRAS Media Release.

Wednesday, October 26, 2011

Cloud computing costs are now PIC-able

On Deepavali Day, I received a very pleasant surprise.

I just read that Cloud Computing Costs are not only tax-deductible (which we know) as business expenses, they now qualify for additional deduction under Productivity & Innovation Credit.

An example cited in ST's news article - "word processing that exist online rather than on individual computers". A $100 expense would qualify for up to $400 deduction against your income (subject to meeting other terms and conditions.)

Christmas present?
Important terms and conditions to note before we jump for joy are:-
1. spent on qualifying expenditure and are entitled to PIC during the time period concerned
2. active business operations in Singapore
3. at least 3 local employees at the VERY last month of the qualifying time period

(Who are the 3 employees? INCLUDING Singaporeans & PRs but EXCLUDING sole proprietors, partners under contract for service and shareholders who are directors of company)

Tuesday, July 12, 2011

Zero GST for basic goods?

food n price to be paid
On Jul 8, 2011, Dr Mukul Asher, my ex-lecturer of welfare economics in NUS back in 1980s, was asked to answer the questions as follows.
  1. What would be the effect of implementing a zero percent Goods and Services tax for basic commodities?
  2. Would it help to lower the cost of living for lower income families in Singapore?
Firstly, he uniquely used the term "basic commodities" while the article is entitled "... basic goods". I generally interpreted "basic commodities" as totally unprocessed or barely prossessed raw materials. Consequently, he said GST's orientation would change to tax on value added at manufacturing, wholesale and retail levels. Example - No GST is to be applied on $5 of carrot and $4 of flour imported. When the carrot and flour became a $25 carrot cake, GST is to be applied on $16 value added. He opined that this system would increase cost of administering the tax by authority and compliance costs by businesses. He didn't elaborate as to how it could be so. Alternatively we could consider the Australian's where its GST free supplies include health, education, childcare, religious services, certain foods etc.

Secondly, he concluded that GST revenue would drop due to exemption of basic commodities and prompting higher GST rate. Currently we apply GST on almost on goods and services with government sending cheques with GST rebates to selected individuals to offset regressive tax burdens (a system I am in favour with). So when we compare the two methods in totality, will there be a significant change in collection? Which is more efficient and effective?

Thirdly, Dr Asher applied the basic economic concepts of substitution effect on demand and price when he said households would switch demand from "GSTed" items to "non-GSTed" basic commodities leading to an increase in prices of the latter. This also assume supply of basic commodities would generally be unresponsive. Too simplistic an assumption?

As Dr Asher is a professor of public policy at Lee Kuan Yew School of Public Policy, I am sure he has done much more in depth studies and thinking on the issues but the article is too simplistic with conclusions only given cursory elaboration.

Reference - ASHER, Mukul, "Zero GST for basic goods? Bad idea.", The Straits Times, July 8, 2011.

Wednesday, January 05, 2011

When do your business need to register for GST under new rules?

Under the new GST - Time of Supply Rules effective Jan 1, 2011, there is no more prospective and retrospective test that we used to do.

Under the new law, the time of supply for most transactions will be triggered by the earlier of the following two events:-
a) when payment in respect of the supply is received; and
b) when invoice in respect of the supply is issued.

Consequently the rules to determine when a business need to register for GST would have to change too.

Suppose Company performed and completed only 2 transactions in the year 2011. Each transaction is $600,000.

One transaction has been invoiced and paid. The other transaction, while completed, has NOT been invoiced nor paid as at Dec 31, 2011.

The value of supply made in 2011 under the new rules is only $600,000/-. Therefore company's liability to register has not yet arisen on Jan 1, 2012.

Saturday, January 01, 2011

Simplifying GST accounting from today

The output GST recognition rule will be simplified from today to allow most businesses to account for GST when a tax invoice to account for GST when a tax invoice is issued or when payment is received, whichever is earlier,

Saturday, December 18, 2010

Taxman overruled again!!

The Court of Appeal overrules IRAS again, twice over the last two months.

What is the issue?
Are portable dormitories considered "plants" as per plaintiff being in the business of providing dormitory services or "buildings" as per IRAS?

At a total cost of $2.6 million, the plaintiff had built and operated 6 blocks of three-storey container-like as temporary workers' accommodation and administrative use within an industrial estate. Each block was made of "steel beams held by nuts and bolts while panels were inserted within this steel framework to form walls. "The floor was made of timber and each dormitory was topped with a metal roof".

Decision and Basis
IRAS has been told by the Court of Appeal to treat such portable dormitories as "plants".

The three-judge court led by CJ Chan Sek Keong overruled the earlier decisions of Income Tax Review Board and the High Court and defined such assets as "plant" on the following criteria:-
  • built on prefabricated materials
  • could be dismantled and moved elsewhere within 90 days' notice
The Court of Appeal concluded that the definition of plant would depend on "its exact operational role in the taxpayer's business, its characteristics and the precise factual matrix and context concerned".

Leung Yew Kwong and Tan Shao Tong from WongPartnership, lawyers for the Plaintiff, had argued that their client's business of providing dormitory service involved moving and reusing such assets in other sites in the future. [The same team from the same law firm won in the Nov 2010's case.]

IRAS' lawyers, Irving Aw and Quek Hui Ling, had relied on past rulings of similar situations. They cited a specific example where circus tents functioned as premises and would not qualify as plants.

To the plaintiff, the decision could now claim for tax relief and secure "a tax savings of at least $500,000 based on 2004 tax rates".

In my humble opinion, it is a difficult issue for IRAS as acknowledged by Judge of Appeal Andrew Phang. The law does not provide the definition of "plant" (as such words from my tax lecturer still echo in my head after years) and the three-judge court had to dwell on its precise definition in arriving at the decision.

Source - K.C. Vijayan, "Court of Appeal overrules taxman", The Straits Times, Dec 18, 2010.

Sunday, November 07, 2010

Court overrules tax authority

can you pick up customers in yellow box?

What is the issue in dispute?
The company is in the business of leasing aircrafts. The company has subsidiary firms in Cayman Island. The subsidiary firms bought aircrafts with loans pegged to floating interest rates. The aircrafts are rented out to airlines on fixed rental rates.

The subsidiary firms are supposed to use the rental proceeds to service the interest obligations. Often, the firms face revenue shortfall to meet those obligations.

The Singapore parent then entered into interest rate swap arrangements with banks in Singapore to hedge against the risk of floating interest rates on behalf of its subsidiaries. During the 17-month period from October 2006, the Singapore parent company made payments to its subsidiaries overseas as part of interest rate swap arrangements. 

IRAS's position
  • IRAS has taken the position that these interest payments overseas are subject to withholding tax under provisions dealing with loans borne by the parent firm.
  • The Comptroller argued that such broad interpretation of the relevant section for such payments to be taxable has been accepted by tax advisers, practitioners and businesses in the past.
P/S - The name of legal counsel representing IRAS was not mentioned by K.C. Vijayan, the ST law correspondent.

The Singapore parent's position
  • The tax authority has taken a too broad an interpretation of the law.
  • Such braod interpretation may actually discourage foreign investors from doing business in Singapore.
P/S - Leung Yew Kwong / Tan Shao Tong from WongPartnership represented the plaintiff.

High Court - Justice Andrew Ang
The Court ruled in favour of the Singapore parent on the following grounds:-
  • interest rate swap payments are not subject to withholding tax under s12(6)(a) of Income Tax Act
  • the payments were not in relation to any loan borne by the firm here
  • IRAS has taken a too broad an interpretation of the law
  • past acceptances by tax advisers, practitioners etc should not be cited to justify an interpretation of the law
The ruling would mean that the Comptroller of Income would have to make substantial refund and pay costs to the Singapore company. The costs to IRAS could go higher when business entities which were involved in similar situations and had paid the taxes may now seek a review with IRAS given the ruling.

Reference - K.C Vijayan, "Court overrules taxman, orders refund for firm", Straits Times, Nov 6, 2010.