What you think is a “+9% markup” is actually a compliance minefield for businesses. When many entrepreneurs and SME owners hear “Goods and Services Tax” (GST), their first thought is “just add 9% to the price.”
Reality is far more complex: registration thresholds, input/output tax offsets, zero-rated/exempt supplies, filing cycles, and e-invoice requirements—any misstep can turn a “small amount” into “hefty fines” or even criminal liability.
Recent joint investigations by Singapore’s IRAS and SPF have exposed a series of cases serving as stark, real-world lessons. From accounting errors to deliberate fraud, the consequences vary widely but the costs are invariably severe.
I. Tax Evasion Results in $3.58 Million Fine – The Price Is Higher Than You Think
In August this year, a 50-year-old female director, Ms. Zhang, was found to have manipulated accounts between two companies, falsifying income and GST declarations. She evaded approximately S$2.26 million in taxes. The court ordered her to pay a total of over S$3.58 million in fines and penalties (including a S$131,000 fine and S$3.457 million penalty), and she has been required to repay the evaded taxes.
Case details reveal that the involved accountant suggested merging part of Matrix’s income into Maxim’s accounts to make Matrix appear below certain audit or registration thresholds. Subsequent GST filings were adjusted to “match” this accounting arrangement.
IRAS’s audit commenced in 2014. Through surprise inspections and gradual reconstruction of facts, it demonstrated that tax audits are not overnight affairs—traces in historical accounts inevitably surface within the audit chain.
This case serves as a stark reminder to businesses: short-term “accounting optimization” can evolve into long-term legal and financial disasters.
Source: Lianhe Zaobao
II. $11.8 Million Fraudulent Refunds: GST Far More Complex Than “Rate Hikes”
In June this year, authorities uncovered another major case involving a $181 million “Missing Trader Fraud” scheme. Two suspects fabricated contracts and closed-loop invoices to claim and attempt to defraud millions to tens of millions of Singapore dollars in tax refunds.
The criminal tactics included establishing multiple companies to form a closed-loop “purchase-sale” cycle. Upstream companies would issue invoices to collect output tax before “disappearing,” while downstream companies would then claim input tax credits and refunds based on these invoices. IRAS noted this pattern is a classic “Missing Trader Fraud” scheme. Once identified, not only are input tax credits denied, but offenders also face additional surcharges, fines, and criminal prosecution.
In recent years, IRAS has repeatedly publicized similar cases and reminded businesses to conduct due diligence on their supply chain partners to avoid being drawn into fraudulent schemes.
These cases once again demonstrate: treating GST as a “9% game to be played casually” carries extremely severe consequences.
Source: IRAS website
III. How Does Singapore’s GST Operate? Classification and Registration Are the Foundation
To understand the risks, one must first grasp the operational logic of GST:
1. Tax Rates and Timing
Effective January 1, 2024, Singapore’s standard GST rate is 9%. Businesses must determine applicable rates based on the “time of supply” and “time of payment,” while adhering to transitional rules for rate changes.
2. Supply Classification Determines Tax Treatment
Standard-Rated Supply: Goods and services sold locally typically incur 9%;
Zero-Rated Supply: Exports or supplies to overseas customers may qualify for 0%, though businesses may still claim input tax credits (requiring documentation proving export or overseas delivery);
Exempt Supply: Transactions like residential property sales and certain financial services are GST-exempt, with related input tax credits ineligible for deduction;
Out-of-Scope: Transactions not occurring in Singapore fall outside the GST levy scope.
3. Registration Threshold
Businesses must register as mandatory GST taxpayers if their taxable turnover exceeds S$1 million over any 12-month period or is projected to exceed S$1 million in the next 12 months.
Businesses below the threshold may register voluntarily, but once registered, they bear the same compliance obligations as mandatory registrants. Understanding these classifications and determining the nature of supplies accordingly is the first step toward compliance.
Image source: IRAS website
IV. Calculation, Deduction, Filing, and Refunds: Pitfalls Behind the Formula
GST calculation appears straightforward: GST payable = Output tax (charged to customers) – Input tax (paid on purchases).
However, common pitfalls in practice include:
– Non-compliant invoices or supporting documents rendering input tax ineligible for deduction;
Using GST-inclusive purchases for tax-exempt transactions that cannot be deducted;
Cross-period procurement and sales causing accounting mismatches, creating dual pressures on cash flow and compliance;
Failure to meet electronic invoicing and record-keeping requirements after voluntary registration (IRAS is promoting the InvoiceNow system, gradually mandating real-time or structured invoice transmission).
Consider this example: Company A invoices a customer for S$109,000 (including 9% GST), with output tax of S$9,000. If the company purchases parts for S$40,000 (including GST), with input tax of approximately S$3,303, the GST payable is S$9,000 – S$3,303 = S$5,697.
If the company cannot provide valid input tax invoices, the S$3,303 cannot be deducted. The company must make up the payment and faces penalties. IRAS has prioritized invoice authenticity and supply chain consistency in audits. Businesses must retain contracts, logistics documents, bank statements, and other evidence proving transaction validity.
Image source: Lianhe Zaobao
V. Consequences of Late Filing, Underpayment, or Fraudulent Reporting: Penalties Are No Small Matter
IRAS imposes strict penalties for late filing, underpayment, or fraudulent reporting:
1. Late Payment Penalties
A 5% penalty on the outstanding tax amount is imposed from the first day of delinquency. If unpaid after 60 days, an additional 2% penalty accrues monthly, up to a maximum of 50% of the outstanding tax.
2. Late filing penalties
Each untimely submitted GST return incurs an immediate S$200 penalty, with an additional S$200 per month of delay, up to a maximum cumulative fine of S$10,000.
3. Serious Violations
For fraudulent activities such as “missing trader fraud,” IRAS will disallow input tax credits, impose surcharges, recover taxes, and refer cases to police investigations. Individuals or company executives involved may face criminal charges, account freezes, or travel restrictions.
IRAS collaborates closely with police on such cases, continuously enhancing enforcement capabilities and technical investigation methods.
Source: IRAS website
VI. Compliance Recommendations: 8 Essential Tasks for Businesses
To minimize GST compliance risks, businesses must fulfill at least the following eight requirements:
1. Regularly assess turnover to determine mandatory registration eligibility;
2. Establish standardized invoice and contract management processes to ensure invoices align with procurement, logistics, and payment records;
3. Archive cross-border transactions, retaining export certificates and customer location details;
4. Establish training mechanisms for internal and external accountants to ensure consistent application of zero-rated and tax-exempt supplies;
5. Conduct supply chain due diligence to avoid involvement in Missing Trader Fraud;
6. Early adoption of electronic invoicing solutions like InvoiceNow/Peppol to align with IRAS digitalization trends;
7. For complex transactions or large-scale tax refunds, consult tax advisors beforehand and retain all supporting documentation;
8. If audited by IRAS, cooperate fully and provide complete records—early engagement often mitigates penalties.
Conclusion: GST is not a burden, but a moat for corporate compliance
While GST may appear merely as a “9% price markup,” for businesses it serves as a “guardrail” for compliant operations.
By understanding the rules, maintaining accurate accounts, preserving evidence, and embracing e-invoicing, you minimize risks. Cutting corners through “fake accounts” or “fictitious transactions” carries consequences far exceeding tax arrears: penalties, criminal liability, credit ruin, and even restrictions on personal freedom.
Taking GST compliance seriously is not only a legal obligation but the cornerstone of stable operations and long-term business growth.