GST: A challenge to the IRAS’ published guides?

A recent tax case allowed an appeal against the IRAS’ decision to deny zero-rating of exports due to the lack of documents required.

On 29 June 2021, the GST Board of Review (Board) issued a decision in the case of GDY v Comptroller of Goods and Services Tax [2021] SGGST 1. This case relates to an appeal by GDY against the decision of the Comptroller of GST (Comptroller) to disallow the zero-rating of certain taxable supplies of goods purportedly exported to Malaysia on the basis that GDY did not maintain certain documents in accordance with the Inland Revenue Authority of Singapore’s (IRAS) e-Tax Guide GST: Guide on Exports (ETG), which were required for zero-rating. 

Background of the case

GDY sold mobile phones, tablets, notebooks and related accessories to their Malaysian customers, who would personally collect the supplies from GDY’s place of business through employees or agents. The employees or agents would then hand-carry the goods to Malaysia by motor vehicles. GDY had zero-rated the supplies of goods to the Malaysian customers. 

Following an audit in 2006, the Comptroller issued a list of export documents that GDY had to maintain (Specific Directions) in relation to the supplies of goods to the Malaysian customers. The ETG was revised in 2009 and imposed the requirement to maintain a completed Declaration Form from the carrier of the goods to be exported and to record the carrier’s vehicle number on the export permit. These requirements were not within the Specific Directions issued by the Comptroller in 2006.  

The Comptroller conducted another two audits in 2007 and 2013, where the Comptroller had reviewed and accepted the set of export documents maintained by GDY according to the Specific Directions. In January 2016, the Comptroller conducted another audit and found that GDY had not furnished certain documents required in the ETG published in 2009, specifically the requirement to maintain the Declaration Form and record the carrier’s vehicle number on the export permits. GDY’s submission argued that it had relied on the Specific Directions made by the Comptroller to GDY in earlier audits to satisfy the documentary requirements for the zero-rating of its export supplies.  
 
The IRAS was investigating people who were suspected to be involved in carousel fraud at that time. One aspect of carousel fraud involves goods that were purportedly exported in a paper exercise to either claim fraudulent GST refunds or to resell the goods in the domestic market without paying GST. GDY was identified as a high-risk wholesaler as it traded in electronic products that were small in size and yet high in value. This also played a part in triggering the audit in January 2016. 

Due to the lack of documentation under the ETG revised in 2009, the Comptroller denied the zero-rating of export supplies by GDY and imposed an aggregate output tax liability of close to S$27m (exclusive of penalty) for certain prescribed accounting periods between April 2013 and October 2016 and a 5% late payment penalty of approximately S$1.1m on GDY. 

The key issues in dispute are as follows:

• Whether there were grounds for the Comptroller to consider that no exports had in fact been made in respect of the disputed transactions. Specifically, under section 8 of the GST Act, a taxable supply made in Singapore is subject to GST at the standard rate of 7%. However, the Comptroller could exercise discretion to zero-rate a supply of goods exported or be exported, under section 21(6) and section 21(7) of the GST Act read with regulation 105(1) of the GST (General) Regulations.

• Whether the ETG was legally binding as a condition issued by the Comptroller such that the non-compliance of which would render the transactions to be GST taxable, or whether the ETG is merely an administrative guide. 

• Whether the ETG was superseded by Specific Directions made by the Comptroller to GDY in earlier audits on the supporting documents to maintain for the zero-rating of the supply of goods exported to Malaysia.

Decision of the Board

The Board found the GST assessment of close to S$27m erroneous and allowed the appeal in favour of GDY. The key bases are highlighted below:

• Whether there were grounds for the Comptroller to consider that no exports had in fact been made in respect of the disputed transactions.

The Board considers that where the taxable party had provided evidence supporting the export of supplies, it was incumbent on the Comptroller to take the necessary steps to examine whether such export had occurred. The Board disagreed that the Comptroller had taken such steps in GDY’s case.   
 
GDY had furnished voluminous documents (e.g., export permits, delivery orders or collection notes signed by the carrier, photocopies of passport of the carrier’s agent or employee showing personal details and immigration endorsements, payment evidence, and signed and stamped confirmations of receipt from the Malaysian customers certifying that they had received the goods) comprising over 30,000 pages for 3,426 disputed transactions, which were compliant with the requirements of the Specific Directions and demonstrated that the goods were exported.  
 
In contrast, the Comptroller conducted no detailed investigation into GDY’s operations or its trading partners, nor was any opportunity afforded to GDY to explain the alleged discrepancies noted by the Comptroller in the declared weight of the goods in the export permits. The Comptroller had also relied on the lack of the Declaration Form and the lack of retention of Malaysian customers’ import permits in concluding the audit. 
 
Consequently, the Board found that it was unfair and unreasonable for the Comptroller to conclude that there had been no export of the supplies made by GDY. 

• Whether the ETG was superseded by Specific Directions made by the Comptroller to GDY in earlier audits. 

It was undisputed that the Comptroller had the power to waive or depart from the conditions imposed in the ETG, and the requirements under the Specific Directions superseded the ETG. Particularly, the Board found that the Specific Directions issued by the Comptroller in 2006 were not revoked in subsequent audits or the passage of the revised ETG in 2009 (for instance, GDY had passed the audits in 2013 without qualification). GDY should therefore not be denied zero-rating on the basis that it had failed to provide the required documentation mandated under the revised ETG in 2009.  

• Whether the ETG was legally binding as a condition issued by the Comptroller.

While the issue of the validity of the ETG is rendered moot by the Board’s findings that the Specific Directions superseded the ETG, it should be highlighted that the Board has, however, observed that to validly exercise a statutory power to impose a condition for zero-rating, the Comptroller should make explicit reference to the statutory provision under which the Comptroller was exercising such power, as well as some evidence that it was issued by the Comptroller. 
 
As pointed out by the Board, the name of the document itself should not allow confusion (for instance, the word “guide” is used rather than “conditions” in the ETG) if it is indeed the Comptroller’s intention to treat the requirements in the ETG as statutorily imposed conditions.  
 
Lastly, the Board also commented that the Comptroller should take reasonable steps to ensure that such conditions are brought to the attention of taxable persons to whom it applies.

The Comptroller is currently appealing against the Board’s decision with the High Court.

Point of view 

A key takeaway from this decision is that taxpayers should be able to rely on directions received from the Comptroller in previous audits or rulings, provided that these directions are given by the Comptroller after any relevant guides are published by the IRAS and are not subsequently revoked.

While the Board ultimately did not conclude on the validity of the ETG, this appeal provides some food for thought on the degree of reliance to be placed by taxpayers on the guides published by the IRAS.  
 
Notwithstanding that the guides published by the IRAS act as a conduit to assist taxpayers with interpreting and adhering to the GST law, it now appears that, unless mandated, such guides published by the IRAS are not necessarily the be-all and end-all when assessing a taxpayer’s compliance with the GST law. The fact that the Comptroller had reviewed and accepted documents listed in the Specific Directions in its audit of GDY in 2013 (instead of documents stated in the ETG revised in 2009) suggests that the Comptroller may not at all times place full reliance on adhering to the guides. Perhaps there will be more clarity following the Comptroller’s appeals against the Board’s decision with the High Court.

Presently, failure to comply with the guides published by the IRAS could lead to lengthy audit queries and prove costly for taxpayers. It is therefore best for taxpayers to seek the Comptroller’s approval early if an arrangement or scenario deviates from the relevant guide and is not free from doubt. Ideally, taxpayers should keep abreast of changes in the GST landscape and put in place a robust tax governance framework to mitigate any risks arising from legislative changes. Taxpayers should also undertake regular review of its current GST treatment adopted and the GST rulings obtained to ensure they comply with the current legislation and are still valid in view of existing business models or arrangements. 

The co-authors of this article are Chew Boon Choo, Partner, Goods and Services Tax from Ernst & Young Solutions LLP and Melissa Lim, Manager, Goods and Services Tax from EY Corporate Advisors Pte. Ltd.