Get more out of GST

N TOUGH economic times, GST authorities such as Customs are arguably likely to increase scrutiny of filings and compliance, particularly refunds. The levels of audit activity are likely to rise. Authorities may be less willing to grant concessions and simplifications in relation to GST issues on restructuring and mergers and acquisitions generally. There may also be less flexibility on interpreting rules/regulations to the extent that this could result in lower GST revenue. And historically, tax authorities worldwide have tended to be more aggressive in pursuing under-declarations of GST and in charging interest/penalties.

In an economic downturn, companies typically focus on getting back GST incurred on expenses more effectively and more quickly. They seek to postpone the time at which they need to account for GST on sales and/or net tax payable - to the extent possible within the spirit and the letter of the law. Companies also look to manage risk in their compliance processes, ensuring they file returns that are correct and on time. Furthermore, businesses tend to look for ways to structure transactions to prevent GST arising in the first place, even if the tax would be recoverable.

Managing indirect taxes well can be the key to unlocking real bottomline savings and improved cashflow.

Here are some best practices you can tap on to maximise GST recovery, manage indirect tax liabilities, improve compliance, enhance import/export processes and handle one-off transactions effectively.

1. Maximise GST recovery

Maximising GST recovery means managing accounts payable processes more effectively to accelerate claims in relation to tax on input costs - for example, earlier booking of invoices. At the same time, you should look to optimise the use of indirect tax simplifications and facilitations - for example, GST deferrals such as the Major Exporter Scheme in Singapore. Also, remember that when times are tough bad debts go up too - so introduce processes to claim GST bad debt relief efficiently. Do not forget that Singapore is not the only country with a GST or VAT - increase the frequency of foreign GST refund claims where applicable.

2. Manage indirect tax liabilities

It is important to tax-align your company's supply chains from a GST and duty point of view and examine ways to postpone GST payable, including simple strategies such as issuing non-GST payment demands instead of tax invoices. Look to eliminate charges subject to GST where possible. For example, set up a GST group to take inter-company charges out of the scope of tax. Consider, too, how your company can improve the timing and accounting for inter-company charges and invoices. Can you optimise the use of indirect tax simplifications and facilitations by using export companies, maximising VAT/GST zero-rating on exports of goods and services or by using call-off or consignment stock simplifications?

3. Improve compliance

Few companies spend much time or money evaluating the effectiveness of their ERP systems and accounting processes. Our experience is that those that do take the trouble to undertake such assessments find them very beneficial - an assessment of duty/GST compliance provides a view of what the company does well - and what it can improve on - in managing duty or GST. Recommendations and action points from such exercises could include return preparation/review procedure improvements, early or just-in-time filings and changing return periods.

4. Enhance import/export processes

Look at whether using Customs or GST warehousing arrangements to postpone or eliminate the incidence of indirect tax on transactions would affect your business. There may be options to optimise indirect tax simplifications and facilitations - for example, import duty/VAT/GST deferment accounts. This ensures documentation on/evidence of exports of goods and services is in order - a strict requirement in almost every country.

5. Handle one-off transactions effectively

Dealing with indirect tax on one-off transactions - acquisitions or divestiture of businesses, reorganisations etc - is always difficult. There are usually so many things to consider that tax, let alone indirect tax, is left until last. The important point here is to ensure that consideration is given to planning and structuring to eliminate indirect tax charges on such transactions - VAT/GST grouping on company reorganisations, use of transfer of going-concern simplifications etc. It is critical in reorganisations and M&A transactions to ensure that business operations continue as usual and, if possible, optimised from a duty/GST perspective - for example, ensure that indirect tax simplifications and facilitations such as licences and deferment accounts are in place by day one.

6. Manage your indirect taxes to ride through the economic storm

There are lots of things to think about on indirect taxes in hard times. Some of these things are practical, easy and common sense. Others require you to strategise and plan and may require input from analysts outside your company. My advice is that spending a little time organising your indirect tax affairs will serve you and your business well in the short, medium and long term. Remember that with adversity always comes opportunity - managing indirect taxes such as GST and Customs Duty well will better position you and your business for the good times that will inevitably come.