Have you heard of the PIC scheme revision? If you want to know more about it, continue reading as it is relevant to every startup.
In February 2016, a director and several companies were charged with a hefty penalty. It is an outcome of their action of claiming a high amount of Productivity and Innovation Credit (PIC) cash payout through fraudulent transactions.
Director Alan Ang Soon Teck (“Alan Ang”) and his company One IT Distribution Pte Ltd (“One IT”) faked deliveries of automation equipment. It amounted to $27,167 to Chuan Huat Electronics with fabricated invoices. As a result, Chuan Huat Electronics claimed a PIC cash payout of $16,300.20 using the said invoices. However, the transaction never occurred between the two companies.
IRAS never tolerate abusive arrangements. Therefore, it charges severe penalties to those abusing the PIC Scheme. For example, IRAS imposed a total fee amounting to $108,825.60. Also, there is a 12-day jail time on Alan Ang. It happened after discovering other similar transactions between him and four other companies.
PIC abusive arrangements are not new. Also, few other artificial transactions have been discovered over the years of implementing the anti-abuse measures. With this, the PIC scheme revision has more strict policies.
Since PIC provides a cash payout conversion rate of 60% of the qualified expenditure:
$15,000 x .60= $9,000
6. Neither company have a real need for the said transactions as they conduct the same training. However, they both apply for PIC cash payouts and the bonus of $24,000 each.
Productivity and Innovation Credit is a grant under the supervision of IRAS. It provides tax deductions or allowances, cash payouts and bonuses. Also, it encourages budding startups to use innovative tools for increased productivity.
All active businesses are qualified if they have legal registration in Singapore. PIC has three benefits which are all applicable in six qualifying activities.
PIC grants 400% tax deductions/ allowances on up to $400,000 of expenditure per year in each of the six qualifying activities.
If your startup spent $1,200,000 for automation equipment in 2013 to 2015:
(400% x $1,200,000) = 4.0 x $1,200,000= $4,800,000
2010 is the introduction of the PIC. However, the PIC Scheme came after in 2014. The benefit includes SMEs or businesses with annual revenue of not more than $100 million. Also, it covers companies with less than 200 employees.
From Years of Assessment (YAs) 2015 to 2018, qualifying businesses can enjoy 400% tax deductions/allowances on up to $600,000 of qualifying expenditure per year in each of the six qualifying activities.
Previously the capped qualifying expenditure was $400,000. But, those making qualified transactions on or after 1 August 2016 will have an increased cap of up t0 $600,000. This way, more SMEs will be able to claim payouts and bonuses.
It gives SMEs the Option to convert up to $100,000 of total spending in all six activities for each YA into a non-taxable cash payout. But it is in lieu of the tax deduction/allowance. So it is a way to help all struggling SMEs get more extra cash to go further.
For qualifying expenditure obtained from YA 2013 to 31 July 2016, the cash payout is 60%. However, all qualifying expenditures acquired on or after 1 August 2016 to YA 2018 will receive a cash payout conversion rate of 40%.