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Filing of GST returns
Once registered for GST, the SME has the option to file its GST returns monthly or quarterly. If the SME expects to receive refunds on a regular basis, it may decide to opt for a monthly filing cycle to reduce its cashflow costs. While this will improve cashflow, the SME must also consider the additional work that is required to file the monthly returns compared with filing the returns quarterly. The higher frequency of filing the GST returns can also result in a higher possibility of making mistakes in the accounting of the tax.
How errors can cost the SME more money null
Businesses that are registered for GST often view GST with lesser concern in light of higher corporate tax rates (currently at 18 per cent) as compared with a GST rate of 7 per cent. However, the risks associated with making GST mistakes can be detrimental to SMEs given their relative size. Ask the 3,097 businesses which paid $87 million in tax and penalties after they were audited for GST in the last financial year .
Common mistakes that occur include the claiming of GST paid on purchases that are disallowed and insufficient supporting documentation.
Disallowed input tax includes GST paid on expenses relating to motor cars, club subscription fees, medical and accident insurance premiums, medical benefits, family benefits and any transactions involving games of chance. SMEs that do not have proper accounting systems tend to incorrectly claim the GST paid on such expenses. While one may claim ignorance, the onus is always on the taxpayer to be compliant.
To be entitled to make a claim of GST paid on purchases relating to business expenses, valid tax invoices must be readily available to support the SME's claim of credit. If the IRAS requests for supporting documentation and the tax invoices are not provided within a reasonable time frame, the IRAS can start a full scale audit. This often results in more costs for the business as it needs to spend administrative time and resources to deal with the audit.
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