In February 2016, a director and several companies were charged with a hefty penalty after they tried to claim 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 amounting to $27,167 to Chuan Huat Electronics with fabricated invoices. Chuan Huat Electronics claimed a PIC cash payout of $16,300.20 using the said invoices even though the transaction never took place between the two companies.
IRAS never tolerate abusive arrangements and therefore charges severe penalties to those abusing the PIC Scheme. IRAS imposed a total fee amounting to $108,825.60 and a 12-day jail time to Alan Ang after it has discovered other similar transactions between him and four other companies.
PIC abusive arrangements are not new and few other artificial transactions have been discovered over the years of implementing the anti-abuse measures. With this, PIC has been revised with more strict policies.
Common PIC Abusive Artificial Transactions
- Front Businesses and Fake Transactions
- A person creates a startup and becomes its director.
- Then he/she enlisted his/her family and friends as employees.
- The director even pays the minimum CPF to make them seem legit, yet there is no real work done.
- A company can only claim a PIC cash payout if it has least 3local employees. Since the director faked his employees, he can then claim some benefits from PIC.
- Other fake business owners even sign made up agreements with a conspirator to buy overpriced websites and apps.
- Unreasonable Transactions
- Two individuals agreed to set up Company A and Company B which provide similar services.
- Company A conducts trainings to the employees of Company B.
- Company B conducts similar trainings to the employees of Company A.
- They charge each other with $15,000.
- They then claim PIC benefits for the said trainings.
Since PIC provides a cash payout conversion rate of 60% of the qualified expenditure:
$15,000 x .60= $9,000
- Neither company have real need of the said transactions as they conduct the same trainings, however they both apply for PIC cash payouts and bonus of $24,000 each.
- Expenditure Disproportionate to Revenue Generated
- A person sets up three e-commerce Companies A, B, and C.
- Company A sells ladies’ clothes. Company B sells ladies’ shoes, and Company C sells make-ups.
- Each one declares revenue of $1,000 for a certain period of time.
- However, each also claims to have paid $15,000 for a software.
- All of the three companies claim $24,000 each from the PIC Scheme.
- After paying the vendor $15,000 for the website, each will retain $9,000.
- The owner will then keep a total of $27,000.
Productivity and Innovation Credit is a grant under the supervision of IRAS which provide tax deductions or allowances, cash payouts and bonus to encourage budding startups to use innovative tools towards increased productivity.
All active businesses are qualified as long as they are legally registered in Singapore. PIC has three benefits which are all applicable in six qualifying activities.
- Tax Deductions/ Allowances
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
- PIC+ Scheme (Only for SME)
While the PIC itself introduced in 2010, the PIC Scheme was presented in 2014. This benefit was developed especially for SMEs or businesses with annual revenue of not more than $100 million and has 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, yet those who are going to make 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.
- Cash Payout
This 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, in lieu of the tax deduction/allowance. This is to help 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 cash payout conversion rate at 40%.
Most Recent Revisions
- To manage the growing number of fake abusive claims, starting on 5 Jul 2016, 2-Step Verification or 2FA is required when you access IRAS’ e-Services using SingPass. This is for setting up 2FA for your SingPass.
- To keep strict anti-abusive measures, IRAS selects a sample of applications for audit. IRAS will request further details and supporting documents for review from cases selected for audit, IRAS strive to complete the review within three months from receiving the complete information. The processing time may take up to six months, depending on the complexity of each case.
- If you have made errors in your claims for PIC enhanced tax deductions/ allowances in the Income Tax Return (Form C-S/ C), submit a revised tax computation together with the Form for Filing Revised Income Tax Computations. It is better to voluntarily correct your claims rather than be charged with fraudulent activities.
- IRAS also warns the entrepreneurs of vendors who claim to be PIC experts and will ask for extra cash in return of processing your PIC application. Remember that IRAS do not endorse any vendors, consult IRAS first before making any purchase for your company.
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