Enhancements to the IRAS Voluntary Disclosure Programme (VDP)
Update on 2 January 2013:
The IRAS has released the revised e-Tax Guide on the VDP (5th Edition) on 1 January 2013. You can download the copy attached at the end of this alert or go to: http://www.iras.gov.sg/irashome/uploadedfiles/e-Tax_Guide/etaxguides_Comp_IRAS%20voluntary%20disclosure%20program.pdf
The IRAS Voluntary Disclosure Programme (VDP) was introduced in 2009 to encourage businesses to come forward voluntarily and disclose their past errors in relation to GST and Income Tax (personal, corporate and withholding taxes). Coupled with "carrots" such as waiver of penalties, and/or reduced penalties of 5% (as opposed to a 200% penalty in the event of an IRAS GST audit), the VDP has been well received by businesses.
To further enhance the VDP, the IRAS will be introducing more "carrots" and refinements to the VDP from 1 January 2013. The changes are aimed at further encouraging businesses to go under the VDP and administering a more equitable VDP framework for all businesses. The following are the salient changes to the VDP with effect from 1 January 2013:
1. All disclosures under VDP will qualify for waiver of penalty and/or reduced penalty of 5%, where applicable
The VDP can only be used once in the lifetime of each business for waiver of or reduced penalties. Businesses may therefore hesitate to disclose the errors.
From 1 Jan 2013
It does not matter whether the error is repeated or had been disclosed in the past. The VDP will apply to all disclosures of errors.
2. Taxpayer must honor arrangement to pay additional taxes and penalty imposed (if any)
One of the qualifying conditions for VDP is that the taxpayer must show willingness to make arrangement to pay additional taxes and penalty imposed (if any). However, some businesses did not honor the payments but had enjoyed the benefits under the VDP.
From 1 Jan 2013
Businesses must honor arrangement to pay the taxes and penalties. If not, the IRAS has a right to withdraw the benefits under the VDP.
3. Fraud cases will be included under the VDP
A voluntary disclosure is taken as a mitigating factor when IRAS considers actions to be taken against the business. In other words, the business may or may not be prosecuted, and the penalty could be up to 300% and/or imprisonment of up to 7 years (under GST law).
From 1 Jan 2013
IRAS has promised that there will be no prosecution under the VDP. In addition, a reduced penalty of 200% will be imposed.
4. IRAS has also introduced a template to facilitate the VDP process - the template must be fully completed with all relevant attachments before IRAS will accept the VDP as a valid application (Update on 2 Jan 2013: the template is currently not available. Instead, the IRAS lists down the information to be provided for the disclosure of errors to qualify under the VDP.)
5. Where businesses have written in to "lock-in" the VDP, and not all information is available, IRAS is willing to extend the deadline to a maximum of 3 months (no further time extensions will be entertained) from the date of VDP application provided the reasons are valid and acceptable to the IRAS.
What does this mean to your business? In the past, the VDP can only be used "once in a lifetime" for each business in respect of the full waiver of penalty. Hence, some businesses procrastinated in using the VDP as they wanted to reserve the VDP for "bigger ticket" items where the errors will be significant. With the enhanced benefits of the VDP from this year, businesses are able to take advantage of the VDP as and when there are GST issues to be disclosed, i.e. the VDP is not a once in a life time "chance" anymore. Having said that, if businesses were to disclose errors too frequently, it may appear that there could be issues with its GST compliance. A more holistic approach may be to undertake a review of the GST returns and/or to arrange for a qualified GST professional to conduct GST trainings for the staff, so as to flush out any major GST errors/issues. If you require any assistance on GST, or if you would like to find out further on how the VDP can benefit you, please do not hesitate to contact us at our GST Infoline: 6652 5509.