IRAS Voluntary Disclosure Program
Voluntary Disclosure Program is implemented by IRAS to encourage taxpayers who have erroneously submitted an incorrect tax return or who have evaded tax to disclose their mistakes and wrongdoing to IRAS for a lighter penalty than what they would face if they are audited or investigated by IRAS.
Whether the incorrect filing is related to Corporate Income Tax, Individual Income Tax, Goods and Services Tax, Withholding Tax or Stamp Duty, you can rely on Voluntary Disclosure Program to reduce the severity of punishment imposed by IRAS as compared to that reveal by a tax audit or investigation.
Penalty for Voluntary Disclosure
For Corporate Tax, Individual Tax and GST, the penalty for voluntary disclosure is 5% on the tax undercharged or underpaid for every year of delay after the grace period. Grace period is one year from statutory filing deadline where no penalty will be imposed.
For Withholding Tax, it is a flat 5% on the tax to be withheld.
The following examples provide an illustration of grace period for Individual Income Tax, Corporate Tax and Goods & Services Tax:
- The grace period for Individual Income Tax for Year of Assessment 2018 (with a statutory filing due date of 15 April 2018) will have a grace period up to 15 April 2019. No penalty will be imposed during this grace period for voluntary disclosure.
- The grace period for Corporate Income Tax for Year of Assessment 2018 (with a statutory filing due date of 30 November 2018) will have a grace period up to 30 November 2019.
- The grace period for Goods & Services Tax is a little complicated. Assuming the 4 quarterly GST F5 returns (January to March 2018, April to June 2018, July to September 2018 and October to December 2018) coincide with the Financial Year end of 31 December 2018. The due date for filing the GST F5 for October to December 2018 is 31 January 2019. These 4 quarterly GST returns will have a grace period up to 31 January 2020.
Assuming the same 4 quarterly GST F5 returns with the financial year end of 30 November 2018, the grace period for the GST F5 for October to December 2017, January to March 2018, April to June 2018 and July to September 2018 will have a grace period up to 31 October 2019 as the statutory filing due date for the GST F5 for July to September 2018 is on 31 October 2018.
If the voluntary disclosure is related to tax evasion scheme, the above penalty will not be applicable. The penalty is likely to be 200% of tax undercharged assuming you meet all the qualifying conditions for voluntary disclosure.
What are the conditions to qualify for voluntary disclosure program?
The conditions are as follows:
- Disclosure is initiated by you and made to IRAS before you are queried, audited or investigated by IRAS or before you are listed as a taxpayer to be audited or investigated by IRAS.
- Full cooperation is given to IRAS to rectify the errors and wrongful declaration; and
- Settle the additional tax and penalty imposed by the IRAS.
Preparing for Voluntary Disclosure
You should always bear in mind that IRAS will not just take what you have disclosed as correct. IRAS officers will check, ask for supporting documents to verify, confirm with third parties, etc. to ensure that your disclosure is correct and accurate. Therefore, before the voluntary disclosure exercise, it is necessary for you to engage a tax consultant specializing in tax audit and investigation to prepare all the necessary documents and pre-empt the likely questions from IRAS.
We handle many IRAS Tax Queries every month and will be glad to assist you in your reply to IRAS. It is important that you tidy up your books before you reply them because this may be just the beginning.
If you are going to carry out a Voluntary Disclosure Exercise, make sure that the disclosure is full and complete. If you disclosure is incomplete, it may be thrown out by IRAS.
Advising clients on whether certain transactions have adverse tax implication is another service we provide. We would like our client to be fully tax compliant.