Evolution of managing GST in Singapore — Yeo Kai Eng and Kor Bing Keong

MARCH 3, 2014

MARCH 3 — It was not surprising that the Goods and Services Tax (GST) rate was left intact at this year’s Budget. After all, in 2011, the government gave the assurance that a hike in the GST rate, if any, would not happen for at least five years.

As the government increases its spending on healthcare, education and social programmes to build a more inclusive society, it is a matter of time before some form of tax hike has to occur to fund the escalating costs.

Today, GST contributes close to 22 per cent of Singapore’s tax revenue. Our GST rate is among the lowest in the world. Unlike a rise in income tax, an increase in GST is unlikely to hurt the country’s international competitiveness, given that it is a domestic consumption tax largely borne by end-consumers.

This is also consistent with the shifting of reliance from direct tax to indirect taxes by governments worldwide to fund expenditures. The average European Union standard rate for Value Added Tax (a consumption tax similar to the GST) has increased from around 19.5 per cent to more than 21 per cent between 2008 and 2012.

We are also seeing similar trends in Asia. Japan will be raising its consumption tax rate over the next two years — from 5 per cent to 8 per cent next month and subsequently to 10 per cent next October.

Malaysia has also recently announced its intention to implement GST from April 1 next year.

COMPLYING WITH STRICTER GST AUDITS

Regardless of whether a GST rate hike may happen, businesses should note that the GST audits by the Inland Revenue Authority of Singapore (IRAS) have evolved over the years. The regulatory environment is tightening and the IRAS is adopting more sophisticated tools and methodologies in auditing businesses.

Making errors and not complying with the GST rules and regulations can be costly for businesses in terms of penalties, additional GST to be paid and reputational risks.

Traditionally, the IRAS would enforce GST compliance by way of desk and field audits. To supplement the audits, the IRAS has now introduced two programmes to encourage businesses to take a more proactive approach in managing their GST risks and improving GST compliance.

Under the first programme, known as the Assisted Compliance Assurance Programme (ACAP), businesses that have a robust GST control framework could apply to have their controls reviewed and tested and be awarded the ACAP status by the IRAS.

Under the second programme, the Assisted Self-Help Kit (ASK) programme, businesses could conduct self-review of their GST returns by using the methodology prescribed by the IRAS. Businesses should consider participating in either programme if they wish to enhance their GST compliance.

We are also now seeing an increasing trend of companies moving their finance functions, including the preparation of GST returns, to shared service centres located outside Singapore.

Such an arrangement will inadvertently increase the risk of GST non-compliance. Businesses should put in place controls to manage the risks associated with outsourced functions and consider participating in either ACAP or ASK.

Besides using the ACAP and ASK, data analytics should also be considered in analysing and ascertaining if transactions within an organisation are being processed and dealt with correctly. Data analytics are software tools used in analysing large volume of data for anomalies.

This is particularly useful in the review of accounts payable and accounts receivable transactions.

The analysis performed by data analytics includes reviewing the relevant data for over-claiming of GST, incorrect GST coding, duplicate invoices processed, incorrect GST on invoices and so on.

With business transactions becoming increasingly complex, so does the burden of GST compliance. As we watch expectantly for a GST hike, let’s not lose sight of the everyday tasks of GST compliance at hand. — Today

* This article was first published here.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.

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