Tax Error - Filing an Incorrect Return Carelessly or Negligently
Tax error can be due to carelessness when filing a tax return. When an incorrect tax return is filed negligently, IRAS may end up collecting less tax because of the mistake.
Whether a person reports his income tax incorrectly by mistakes or intentionally depends on the evidence IRAS gathers. If IRAS is unable to show an intention to evade tax, it is more likely to accept that the under-reporting of income or over-claiming of deduction is a genuine mistake.
Penalty for Negligently Filing an Incorrect Tax Return
If a person was careless in his filing of tax return and had under-reported is taxable income in the past, he may be punished quite heavily especially when the tax underpaid is substantial.
The person can be penalized up to 200% of the tax underpaid or undercharged, fined up to SGD5,000 and jailed up to 3 years if convicted under the Singapore Income Tax Act and Goods & Services Act.
Tax Negligence Misunderstood as Tax Evasion
IRAS may suspect the under-reporting of taxable income as tax evasion if the "tax error" is obvious, committed repeatedly and of substantial amount. Valid explanation needs to be provided and other mitigating reasons need to be introduced to the IRAS to show that the "tax error" is indeed genuine.
Voluntary Disclosure for Incorrect Tax Return Filed Negligently
For voluntary disclosure on carelessness or tax error in tax reporting, IRAS is lenient in the penalty imposed. It is usually imposed on 5% per year of delay.
How can you ensure that there is minimum or no error in tax reporting?
A tax review or tax audit by IRAS may surface all tax errors committed by the business in its tax return. To minimize the risk of filing an inaccurate tax return, it is important to engage a tax compliance professional to review your tax reporting before your file. It is even better if the tax professional can perform a thorough check on the tax computation schedules and pull out high risk area for detailed checks.