Tax Evasion in Singapore
Tax evasion as its name implies is to evade tax or to pay less tax illegally. For IRAS to prove that someone is evading tax, there must be sufficient evidence to show that the taxpayer has an intention to pay less tax illegal. If it is his carelessness which resulted in paying less tax, it is not considered tax evasion but negligence.
Creating fictitious invoices, posting false entries, using phantom employees, etc. may be an indication of plan and intention to evade tax.
Penalty for Evading Tax
Under the Singapore Income Tax Act (SITA), the penalty for tax evasion is as follows:
- Tax Evasion under Section 96 of SITA - you may be penalized up to 300% of the tax undercharged, fined up to SGD10,000 and/or imprisoned up to 3 years.
- Serious Tax Evasion under Section 96A of SITA - you may be penalized up to 400% of the tax undercharged, fined up to SGD50,000 and/or imprisoned up to 5 years.
Under Section 62 of Singapore Goods and Services Tax (GST) Act, you may be penalized up to 300% for GST undercharged, fined up to SGD10,000 and/or imprisoned up to 7 years.
Tax Evasion and Tax Avoidance
It is important to know that tax evasion differs from tax avoidance in that it is illegal in practice. When one is evading tax, he or she misrepresents his or her tax reporting, under-reports or does not report the income, and/or over-claims the expenses, and/or shifts the profits without reasonable commercial reason.
Tax avoidance makes use of existing tax laws to reduce how much one has to pay in a legal manner. To do this, keen knowledge of the tax system and tax regulation is required for structuring certain elements to achieve legitimate tax benefit.
Both tax evasion and aggressive tax avoidance are viewed unfavorably by the IRAS. IRAS and tax regulatory bodies around the world take active measures to combat tax evasion via tax audit and tax investigation, ensure taxes are collected, and that tax evaders are punished.
IRAS pursues those who violate tax laws aggressively. There is a three-pronged approach to tackling the evasion of tax:
- Detering the practice with fair but strong regulation;
- Detecting those who are evading their taxes; and
- Dealing with those discovered.
Historical Records Examined by IRAS Investigators
For tax evasion cases where fraud is discovered, there is no time bar period. In other words, IRAS can open up your historical records indefinitely for cases where there is intention to evade tax and calculate the taxes you had evaded for many years.
Tax Evasion and Tax Investigation
Signs of tax evasion may lead IRAS to carry out a full-scale investigation. When your office, residential and other related premises are raided by IRAS, you know that you are under investigation and it can be serious.
Contact a tax advisor with specialized knowledge of tax audit and investigation and not any accountant who does not deal with such cases frequently as he or she may not know the technicalities and complexity in dealing with such cases.
Disclosing the Tax Evaded in the Past
If you are losing sleep over possible tax probe by IRAS over the taxes you had evaded in the past, you may wish to perform a voluntary disclosure - a form of tax amnesty where lower penalty will be imposed on the tax evaders as compared to the punishment they would face if they are prosecuted in court.
IRAS frequently sends out letter to question certain abnormal observations in your tax return. Tax query, when handle properly, will ensure that it does not end up in an IRAS Tax Audit or Tax Investigation.
Need advice on tax issues? Let our Tax Professionals advise you on tax situations you are facing so that you do not infringe the tax rules.