Singaporean in Biggest GST Fraud Case Jailed, Fined US$12.4M

A Singaporean businessman dealing with mobile phones has been sent to jail for 54 months and  ordered to pay a penalty of S$17 million (US$12.4 million) for GST fraud. This is three times the total amount of tax undercharged of S$5.7 million. The amount of penalty  is the highest meted out so far, making this Singapore’s biggest GST fraud  prosecution to date.

 

Mahesh Sukhram Daswani faced a total of 20 charges for claiming fictitious GST refunds in the GST returns of Sadhashiv Enterprises, which subsequently converted to Sadhashiv Enterprises Pte Ltd. He was also charged for assisting SEPL to evade GST by omitting sales and the corresponding GST amount from Jul 2003 to Aug 2004. In addition, Mahesh was charged for assisting another business – Lekhraj & Bros, evade GST.

 

GST Refund Scheme Abused to Evade Tax

GST-registered businesses can offset the GST they pay on their purchases (input tax) against the GST they charge on sales (output tax), paying the net difference to IRAS. If a business incurs more GST on purchases (input tax) than it collects from sales (output tax), it can claim the difference as GST refund from IRAS.  Under the GST law, exports of goods and international services are zero-rated, i.e. the GST-registered businesses need not collect GST on the exports.  However, a GST-registered business who exports his goods overseas may still claim the full amount of GST incurred on his purchases.

 

Mahesh was running Sadhashiv Enterprises whose main business was import and export of mobile phones. SE’s business was transferred to Sadhashiv Enterprises Pte Ltd in 2004.  SE and SEPL's GST declarations were selected for audit arising from our analysis of GST returns submitted by all GST registrants. The substantial increase in SE and SEPL’s trading volume over a short period of time that led to significant GST refunds was also a major risk indicator that alerted IRAS. When auditing SE and SEPL’s GST returns, IRAS tax auditors noted there were huge volumes of handphones purportedly being exported but the export documents appeared suspicious. IRAS tax auditors proceeded to obtain information from various sources to authenticate SE and SEPL’s transactions. Further investigations revealed that Mahesh had fabricated purchases and sales records, and declared the fictitious figures as taxable purchases and supplies in the GST returns in order to claim GST refunds for SE.  SE and SEPL had therefore claimed a large number of fictitious input tax refunds from the Comptroller of GST.

 

Using advanced computer forensics techniques, we detected crucial files  containing detailed transactions of fictitious sales and purchases of SE and  SEPL. It was found that the supplier’s invoices in SEPL’s computer had  been manually and digitally altered, such that it appeared as if input tax  had been paid by SE and SEPL for the purchases. Further checks with SE and  SEPL’s main suppliers confirmed that the original invoices had been zero-rated.  On the instructions of Mahesh, the altered invoices were included in SE and  SEPL’s purchase listings which were then used as supporting documents for  fictitious GST refund claims over the period from July 2003 to July 2004.   Mahesh had also deliberately under-reported SEPL sales in the GST returns,  thereby understating GST output tax that should have  been accounted for and  paid to IRAS.

 

Mahesh had also conspired with Shyam Lekhraj Bhojwani, a partner from Lekhraj & Bros, to claim fictitious GST refunds from IRAS in the GST returns of LB. Mahesh had issued invoices of SE and SEPL to LB to enable the  latter to claim the GST amount as input tax in its GST returns, even though  there were no transactions made. Shyam Lekhraj Bhojwani was charged and  convicted for his part in the fraud in Nov 2006, and was sentenced to 14 months’ imprisonment and penalty of $1.8 million.

 

Mahesh, who pleaded guilty to 11 charges, had another nine charges for  assisting SEPL and LB evade tax taken into consideration in his sentencing.

 

In Singapore, tax evasion and tax fraud are criminal offences punishable under the law and the court imposes severe penalties for such offences.

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