Taxman on the lookout for PIC fraud

10% of 45,000 claims it received in Feb-Oct period flagged as 'high risk'
By Chia Yan Min, The Straits Times, 25 Nov 2014

COMPANIES that hire bogus employees or engage in undocumented high-value cash transactions can expect to have their Productivity and Innovation Credit (PIC) claims rejected by the tax authorities.

The Inland Revenue Authority of Singapore (IRAS), which administers the popular PIC scheme, said at a media briefing yesterday that it is constantly monitoring applications for potential signs of abuse, even as companies come up with increasingly sophisticated attempts at fraud.

The PIC scheme was introduced in 2010 and offers tax deductions or cash payouts to companies that invest in areas such as staff training, information technology or automation equipment to boost their productivity.

IRAS received 45,000 PIC applications between February and October this year. Of these, about 10 per cent - or 4,500 - were flagged as "high risk" cases, with characteristics strongly indicative of illegitimate claims, said assistant commissioner for corporate tax Wilson Ong.

About a third of the "high risk" claims were rejected while the remainder were adjusted.

Some companies claimed to be unable to provide documentation for transactions, including qualifying PIC expenditure, because they were conducted entirely in cash. These include transactions valued in the tens or hundreds of thousands.

Firms have also resorted to fraudulent means to list three local employees on their payroll - one of the criteria for PIC cash payouts.

These "employees" are recorded as receiving Central Provident Fund contributions from the company, but might be related to the directors or shareholders of the business. They might also work for only a few hours a month, or hold down a full-time job with another company.

Newly formed companies filing claims under the PIC scheme for large, one-off expenditures also come under extra scrutiny, said Mr Ong.

"We are constantly fine-tuning our system to pick out fraudulent companies, while at the same time not hindering genuine businesses.

"There are some tell-tale attributes of potential abuse... But (companies' tactics) are also always shifting and changing in response to our actions."

The agency has conducted in-depth investigations into 343 PIC claims since the scheme was implemented in 2010.

IRAS has prosecuted three companies and their directors for submitting false claims.

It has recovered and denied PIC cash payouts and bonuses for 150 wrongful claims, amounting to about $7.6 million including penalties and fines.

New laws passed in Parliament earlier this month also aim to curb abuse of the scheme, for instance, by requiring that businesses show that their IT and automation equipment are "in use" before they can claim cash payouts.

"We can't allow these abuses to erode confidence in the system," said Mr Ong, who added that IRAS started taking a more targeted approach towards illegitimate PIC claims last year.

Ms Jacinta Ong, director of Tea Ideas, said stronger enforcement is needed against errant vendors inflating their prices to take advantage of the scheme, or making use of it as a sales gimmick.

The firm, which distributes and manufactures tea-related products, has used the PIC scheme to help with purchases of laptops, iPads, software and a machine which makes cold tea.

New measures to curb abuse of PIC scheme are reasonable: ASME
Channel NewsAsia, 24 Nov 2014

The Association of Small and Medium Enterprises has said that new measures to curb the abuse of a scheme aimed at helping firms raise productivity are reasonable.

Firms in Singapore have increasingly turned to the Productivity and Innovation Credit (PIC) scheme to subsidise the expense of introducing technology into their workflow. However, there has been a corresponding increase in reports of how the scheme has been abused.

The Inland Revenue Authority of Singapore (IRAS) has received triple the number of allegations of wrongdoing in relation to the scheme within two years. In the first half of 2014 alone, there were about 150 allegations, compared to less than 50 for the whole of 2013.

Earlier this month, Parliament passed a bill requiring businesses to show that new equipment is in use before they can claim rebates on such expenses. ASME said it was a good move for authorities to now require firms to give evidence that what they tap the scheme for is actually in use.

Kurt Wee, president of ASME, said: "You take a picture or you show a proof of use. I do not see what is so difficult about that if companies are really using that particular piece of equipment or machinery. So I think it is a very reasonable step to prevent companies from hogging on purchases which they have never used."

While it probably will not stop fraudsters from gaming the scheme altogether, the association said it may serve as a deterrent.

According to IRAS, one example of abuse is the creation of shell companies to make claims. Under the scheme, cash payouts of up to S$60,000 can be claimed in a year of assessment, subject to conditions like the need for at least three local employees to be on the claimant's payroll.

A cheat would have plenty of covering up to do just to claim S$60,000, said Tan Ching Ne, a partner for corporate tax advisory services at PricewaterhouseCoopers Services.

"So if you try to cheat on one hand, have you covered your bases on the others? The bottom-line is something will give. So I think people who think that they have come out with 'innovative' areas or schemes ... such things are never foolproof," she added.

At least three companies have been taken to court for cheating. Going forward, IRAS said it expects to prosecute more cases of fraud in relation to the scheme.