THE Inland Revenue Authority of Singapore (Iras) now has more teeth to curb abuse of the Productivity and Innovation (PIC) scheme, after new laws were passed to introduce measures to clamp down on errant claims.
Earlier this month, Parliament passed the Income Tax (Amendment) Bill 2014. One of the changes is that businesses must now show that their IT and automation equipment are on the company's premises and deployed for the purpose of business before they can claim cash payouts under the PIC scheme. Previously, they just had to show they had incurred the expenditure. In addition, those who promote or facilitate claims for PIC benefits for abusive arrangements can be punished.
According to Iras, it flagged about 4,500 PIC applications (about 10 per cent of all PIC applications) as high-risk between February and October this year. Of the 4,500 high-risk applications, more than half (57 per cent) presented issues.
Specifically, about 1,035 of the claims had to be adjusted, while about 1,485 were rejected. Claims that were rejected had compliance issues which suggested that the businesses had submitted claims solely to take advantage of the PIC.
Iras has adopted a more targeted approach to tackle false claims since August last year, when it set up a task force comprising investigators and auditors to focus on uncovering PIC fraud.
In the early years (2010-2011), the focus was on education and publicity, said Wilson Ong, Iras assistant commissioner, corporate tax division. But there has been a spike in the number of PIC cash payout applications with suspicious characteristics of fraudulent claims more recently.
The profile of "suspicious companies" include businesses that do not employ genuine employees (or businesses that have no full-time employees and only hires part-time employees), those that engage in high-value cash transactions which can be 20-30 times the company's revenue, and newer companies with no track record.
As at Oct 31, Iras has conducted 343 investigations into PIC claims, and recovered/denied PIC cash payout and bonus for 150 cases of wrongful claims amounting to about S$7.6 million (including penalties and fines).
To date, three companies have been prosecuted. These companies - Greenit, Exel Mitsui Technologies, and Media Grafix - have had hefty penalties imposed on the companies and their directors, with jail sentences also handed out to the latter. Offenders that are convicted of PIC abuse may pay a penalty of up to four times the amount of the cash payout fraudulently obtained or the tax evaded, or be fined up to S$50,000, and/or be imprisoned for up to five years.
The increase in fraudulent claims is in part due to an increase in the number of PIC applications.
As at end-August this year, over S$1.8 billion has been granted to businesses in terms of tax savings and cash payouts. In Year of Assessment 2011, 36,000 (33 per cent of active companies) benefited from the PIC scheme. This figure ballooned to 45,500 (37 per cent of active companies) a year later and 52,500 (40 per cent of active companies) in Year of Assessment 2013.
The PIC has also received generous enhancements since it was first rolled out in 2011. Under the terms of the original PIC scheme, businesses can enjoy a 400 per cent tax deduction or 60 per cent cash payout for investments under six qualifying activities. In 2013, the PIC Bonus was introduced to provide eligible businesses a dollar-for-dollar matching cash bonus on top of their existing PIC tax deductions or cash payout. This year, a PIC+ Scheme was rolled out to provide more support for SMEs making substantive investments to transform their businesses, with a higher expenditure cap for qualifying SMEs.