Rectified Incorrect GST Treatment Made By Inexperienced Accountant
The client is an advertising agency in Singapore with a workforce of 25 employees. The client was looking for legally permissible means to reduce its tax liability, especially on the Goods and Services Tax or GST and corporate tax.
The client had previously hired a service provider which focused on the submission of tax returns instead of tax planning. It did not present any tax savings plan to the client. It even implemented erroneous GST treatment.
Incorrect GST treatment may lead to late registration of GST, calculation errors on GST submission and non-compliance with Singapore Financial Reporting Standards (SFRS). Besides requiring years of adjustments, incorrect tax treatment may also lead to surcharges payable to IRAS.
GST is imposed when a supply of service is made in Singapore, that is, if the supplier has set up an establishment in Singapore. Unless it can be shown that an entity is entitled to zero-rating, any supply of service within the city state shall be subjected to GST liability.
GST treatment applies throughout the supply chain and affects those who bill the media sales, from the media owner to the advertising agency down to the advertiser. One of the challenges encountered with this client is the confusion surrounding the GST treatment of its media sales. The main query was whether or not the agency was subject to GST and whether its income tax treatment is similar to entities engaged in trading and service industry.
The tax treatment for GST and income tax of advertising agencies are different as compared to those in the trading and service industry. Accountant or accounting firms exposed only to catering to trading and service companies may have issues dealing with tax liabilities of advertising agencies because they are not equipped with adequate expertise to resolve complex tax queries of said industry.
For this client, we tried to rectify the errors made by its inexperienced accountant. We looked into Section 21(3)(u) of the GST Act to see if the media sales could be zero-rated. The Inland Revenue Authority of Singapore (IRAS) used the following guide to determine the eligibility for zero-rating of media sales by an advertising agency.
|Type of Services||Qualifying Criteria to Zero-Rate||GST Act|
|Media Sales||Place of circulation is substantially outside Singapore||S21(3)(u)|
|Media Planning||Services are provided contractually to and directly benefiting overseas person.||S21(3)(j)|
|Creative and Production Sales||Services are provided contractually to and directly benefitting overseas person.||S21(3)(j)|
|Brand Public Relations||Services are provided contractually to and directly benefiting overseas person.||S21(3)(j)|
|Event Organising||Event is held wholly outside Singapore; or Services are provided contractually to and directly benefiting overseas person in his business capacity.||S21(3)(i);S21(3)(k)|
Since we found that the media sales made by the agency had at least 51% of the total circulation, meaning the circulation is substantially outside Singapore, we had the client apply the zero-rating for GST, which means it could enjoy more profits instead of paying for tax liabilities.
Usually, it takes one to two years to rectify the taxation errors by previous service providers or inexperienced accountants.
With our help, the client was able to comply with Singapore Financial Reporting Standards (SFRS), GST act and other strict taxation regulations. Now, the client is not only able to operate using a tax planning scheme, it also understands how to apply the zero rating eligibility for GST treatment.