Introduction
A GST registered trader is allowed to claim the GST incurred on its business purchases. However, he must ensure that he meets the criteria of claims. There are two basic conditions for claiming input tax:

The registered trader must be making taxable supplies (i.e. standard-rated supplies and/or zero-rated supplies). A trader who is not making any taxable supplies or is making only exempt supplies is not allowed to claim the GST paid on purchases.

The input tax claims must be supported by relevant tax invoices and/or other documents issued to the trader's name. This implies the following:

Tax invoices from suppliers must be issued to the trader's name.
The tax invoices addressed to the registered trader or the simplified tax invoices given to the registered trader are prima facie evidence to prove that the supplies are contractually made to the registered trader.

Import payment permits must show the trader's name as the importer.
The payment permit is not sufficient to support the input tax claim. All other documents such as the purchase order, delivery note, packing list, bill of lading/airway bill, payment evidence, and insurance documents must consistently show that the trader is the purchaser and the owner of the goods purchased.

Input tax disallowed under the GST Act
A registered trader is not allowed to claim the GST incurred on the following:

Club subscription fee including joining fee, membership fee, transfer fee and other consideration charged by clubs established principally for recreational or sporting purposes

Medical expenses, medical and accident insurance incurred for employees who are not covered under the Workmen's Compensation Act or under any collective agreements with unions under the Industrial Relations Act

Benefits provided to the family members and relatives of any person employed by the trader

Cost and running expenses of S-plated cars (Note: Input tax was not allowed on costs and expenses incurred on Q-plated cars with COE issued on or after 1 April 1998)

When to claim input tax
When a registered trader incurs input tax in an accounting period, it can claim the input tax credits in its return for that accounting period. This applies to input tax incurred on purchases which are to be used for making taxable supplies subsequently.

The trader need not wait for the taxable supplies to be made before claiming the input tax in its return. In other words, there is no matching of the purchases with the taxable supplies.

Input tax incurred on fringe benefits
GST incurred on the purchase of goods and services given as fringe benefits to employees is considered as used for business purpose. Therefore, a registered trader is allowed to claim the GST incurred on such purchases.

However, if the GST is incurred on goods and services which are acquired solely for the benefit of a sole-proprietor, partners, directors or persons connected to these persons for their private use, the registered trader is not allowed to claim such input tax.

The registered trader is also not allowed to claim input tax where the tax invoice is addressed to the employee.

The trader may be allowed to claim the input tax if it is able to prove that the supply is contractually made to him or the employee is merely acting as agent of the trader in receiving the supply of goods and services.

GST implications on fringe benefits

Goods given free to employees
A registered trader must account for the deemed output tax on the cost of goods given free to employees. However, he need not do so if:

The cost of the gift given free is not more than $200 and the gift does not form a series of gifts; or the gifts were purchased from suppliers who are not registered for GST.

Where 3 or more gifts are given to the same person within a period of 3 months, it is considered as a series or succession of gifts. In determining whether a gift constitutes a series of gifts, gifts purchased from non-registered suppliers must also be taken into account. Where there is a series of gifts, output tax must be accounted for on all gifts purchased from registered suppliers even if the total cost of the gifts does not exceed $200.

Even if the registered trader does not claim the input tax it is entitled to claim, it is still be required to account for the deemed output tax when the goods are given free to employees.

Services given free to employees
A registered trader is not required to account for the deemed output tax on services provided free to a customer or an employee as the provision of free service is not a supply within the context of GST.

GST implication on goods given free to customers
A good example is hampers given to customers during festive seasons. The same treatment on goods given free to employees may be applied in this instance. A registered trader is not required to account for output tax if the goods are commercial samples in a form not ordinarily available for sale to the public and are given to an actual or potential customer. To qualify for the above, the package of the samples must be easily distinguishable from the ones existing in the market. For example, such goods should be stamped with the words 'Sample Only. Not for Sale'.

Summary
Due care and diligence needs to be exercised while completing GST returns. A registered trader has to ensure that all values declared in the return are correct when he completes his GST return. Any omission or understatement of output tax or any overstatement of input tax is an offence under the GST Act. By filing an incorrect return, the registered trader may be liable to a fine not exceeding $5,000. In addition, the relevant authority may also impose a late payment penalty on the amount of tax underpaid.

Year published : 2002