Laws and Penalties for GST Evasion in Singapore
What is GST (Goods and Services Tax)?
GST is a broad-based consumption tax levied on the import of goods and nearly all supplies of locally consumed goods and services in Singapore. In this article, we will discuss the offence of GST evasion and its penalties under the Goods and Services Act (the GST Act). The GST Act is the main legislation governing GST and GST-related offences in Singapore.
If you are a GST-registered business in Singapore, read on to find out:
- What is GST evasion
- The penalties for GST evasion in Singapore
- How are GST evaders sentenced in Singapore
- Practical steps that businesses should take to ensure they do not commit GST evasion
What is GST Evasion?
GST evasion occurs when someone intentionally provides the tax authority in Singapore, IRAS, with false, inaccurate or incomplete information about their activities. This is done to reduce their GST liability or obtain undue GST refunds, or when someone assists any other person to do so.
Examples of GST evasion include:
- Claiming input tax on fictitious purchases (e.g. by fabricating or obtaining fake tax invoices)
- Deliberately omitting output tax charged on local taxable supplies from GST returns
- Not charging output tax when you are supposed to do so (e.g. by dealing with customers off the books)
Output tax refers to the GST charged on your supplies of taxable goods and services to your customers, and the tax collected is paid to IRAS.
Input tax, on the other hand, refers to the refund claimed from IRAS for GST paid to your suppliers when purchasing taxable goods and services for business purposes.
What are the Penalties For GST Evasion in Singapore?
If you are found guilty of GST evasion, the following penalties will be imposed on you:
- You will need to pay a penalty of 3 times the amount of tax that was evaded or would have been evaded; and
- You will be liable to a fine of up to $10,000 or to imprisonment for a term of up to 7 years, or to both.
In determining the penalties to be imposed for the offence of GST evasion, the court will apply the sentencing framework that is discussed below.
How are GST Evaders Sentenced in Singapore?
The court will use this 5-step sentencing framework as summarised below:
1. The first step requires the court to determine how culpable you are (i.e. level of your blameworthiness) and how harmful your activities are to society. Factors determining your level of culpability and harm are summarised in the following table:
|Factors contributing to culpability||Factors contributing to harm|
Broadly speaking, if your offence involves the following, your sentence may be higher:
- Prolonged premeditation – this can be shown by evidence of a systematic scheme or false transactions between multiple parties to evade taxes.
- The methods you use to evade tax are sophisticated – for example, methods involving forgery of documents (e.g., invoices) are usually considered rather sophisticated. On the other hand, a simple exclusion of sales transactions from accounting books to evade output tax is generally considered unsophisticated.
- The amount of GST evaded is high.
It should be noted that culpability does not differ between evading output tax and claiming fictitious input tax refunds per se.
2. The second step requires the court to assess your level of culpability and harm. This is done using a three-by-three matrix: your level of culpability will be assessed as falling into low, medium or high culpability, while the degree of harm caused will be assessed as slight, moderate or severe. This matrix determines the general sentencing ranges as set out below:
|Low||Fine or up to 14 months’ imprisonment||14 to 28 months’ imprisonment||28 to 42 months’ imprisonment|
|Medium||14 to 28 months’ imprisonment||28 to 42 months’ imprisonment||42 to 56 months’ imprisonment|
|High||28 to 42 months’ imprisonment||42 to 56 months’ imprisonment||56 to 84 months’ imprisonment|
For example, if the methods of your GST evasion are unsophisticated and the period of your evasion is short, then the court may consider you to have low culpability.
However, if the amount of GST that you evaded is relatively large, the court may consider this to have caused moderate harm. Your offence may therefore be assessed as falling into the low-culpability, moderate-harm category, and you may be sentenced to a range of 14 to 28 months’ imprisonment.
3. The third step requires the court to determine an appropriate sentence for your offence within the category determined in the previous step. This will again depend on your level of culpability and harm. To use the previous example, the court may determine that the appropriate sentence is 15 months’ imprisonment because the level of harm and culpability falls into the lower end of the relevant sentencing range.
4. The fourth step requires the court to consider offender-specific factors that may either reduce or increase the sentence. For example, a plea of guilt and voluntary restitution (i.e. repayment of the amount of tax evaded) may reduce the sentence. On the other hand, previous convictions or the offender’s obvious lack of remorse for committing the offence may increase the sentence. These factors will be considered by the courts in all cases relating to GST evasion.
5. If you are found guilty of multiple charges of GST evasion, the fifth step requires the court to consider all these charges together (known as the totality principle) to determine whether your sentences should run consecutively or concurrently (known as the one-transaction rule). This ensures that the overall penalties imposed are not out of proportion to the severity of the offence committed.
How have the Singapore courts applied this sentencing framework?
In the case of Pua Om Tee v Public Prosecutor and another appeal, the accused person was the sole proprietor of two businesses. Over the course of three years, the accused person evaded a total amount of $226,902.56 in GST by instructing her bookkeeper to exclude certain sales transactions from the accounts of the businesses, thereby omitting the consequent output tax from their quarterly GST F5 Returns.
Eleven charges of GST evasion were brought against the accused person. She pleaded guilty to three charges while eight other charges were taken into consideration for the purpose of sentencing.
In assessing the extent of harm caused, the court noted that while the amount of GST evaded was quite significant, there was no evidence of either substantive expenditure of state resources during the investigation process or the involvement of a syndicate or a transnational element in the offence. Therefore, the harm caused by the offence was considered slight.
In terms of determining the offender’s culpability, the court considered the exclusion of sales transactions from business accounts to be unsophisticated, as no systematic scheme or forgery of documents was involved. As a result, the court found that the charges fell into the low-culpability, low-harm category.
As for offender-specific factors, the court considered the eight charges that were taken into consideration for sentencing to be aggravating factors. On the other hand, the accused person’s plea of guilt, expression of remorse and the full restitution of the taxes evaded were considered mitigating factors.
Given that the offender faced multiple charges, the court applied the relevant sentencing principles and ordered that the sentences for the two of the charges run consecutively, while the other charge would run concurrently. The total sentence that the accused person therefore received was 24 weeks’ imprisonment.
Practical Steps That Businesses Can Take to Ensure They Do Not Commit GST Evasion
Given the serious penalties attached to cases involving GST evasion, business owners in Singapore are advised to take the following steps to prevent the commission of the offence:
- Employ reliable accountants, auditors and corporate services firms to prepare true, accurate and complete GST returns
- Never maintain “two sets of books” in the hope that some transactions “off the books” can be conducted without paying the required GST
- Never fabricate fake tax invoices to obtain or assist other businesses in obtaining undue input tax refunds
Tax evasion is a serious offence in Singapore and offenders may be fined and imprisoned. Therefore, businesses are reminded to be honest, transparent and take extra care in their tax dealings. If you require help in your tax dealings, you might want to contact an ACRA-approved corporate service provider for further assistance.
If you are facing ongoing investigations in relation to GST evasion or have been charged with the offence, you are advised to consult a criminal lawyer specialising in commercial crimes. An experienced lawyer will be able to advise you on your case and represent you throughout your investigation and/or court proceedings.
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