A Guide to Tax Evasion Penalties in Singapore
In Singapore, tax evasion or fraud is considered a criminal offence that is punishable by law. Have you ever wondered what the consequences of tax evasion are?
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What is Punishable in Tax Evasion?
Tax evasion involves unlawful ways to avoid paying taxes and is a criminal offence. This includes things like under-reporting or not reporting income, misrepresentation of tax reporting, and/or the transferring of profits without commercial reason, and/or over-claiming of expenses.
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 illegally. 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 a plan and intention to evade tax.
What Are the Penalties for Evading Tax?
Evading tax in Singapore is no laughing matter. If you are found guilty of any tax evasion act, you may face one or more of the following punishments meted out by IRAS:
- Penalisation of 300% of the tax undercharged, falling in line with Section 96 of the Singapore Income Tax Act
- A fine of S$10,000, three years of imprisonment, or both
- Penalised with 300% of the GST undercharged, should it be found to be owing or not paying taxes under the GST Act.
- If documents were falsified, the criminal will be made to pay up to 400% of the tax undercharged. If found guilty they may face a fine of up to S$50,000, five years of imprisonment, or both.
Isabelle and Rebecca, two business partners of a beauty product company, have been convicted for under-reporting $3.6 million in net income in Income Tax returns for Years of Assessment 2010 to 2014, leading to $359,549 and $24,542 in taxes undercharged for Isabelle and Rebecca respectively. Additionally, they were found responsible for understating UNILOW's net GST payable amounting to S$45,245 in GST.
Isabelle was sentenced to fines and penalties twice the amount of taxes undercharged after she pleaded guilty to sixteen proceeded charges. Rebecca pleaded guilty to six proceeded charges and had her hearing adjourned for sentencing. They’ve got to be accountable for their mistakes!
- Up to S$10,000 fine for the company, while the guilty individuals may face up to seven years of imprisonment.
Lilian and Elizabeth started Little Tots Tuition Centre and failed to declare their salary income to evade income tax. They were convicted for tax offences and the tuition centre was sentenced to a fine of S$1,459 and a penalty of S$6,484 for their failure to register for GST when its taxable supplies exceeded S$1 million. Both of them were found to make incorrect returns through understating income in their tax returns and thus sentenced to pay penalties twice the amount of tax undercharged.
The Difference Between Tax Evasion and Tax Avoidance
Tax laws are created by the Singapore government to make sure that the citizens pay the right amount of tax. While most citizens are compliant, some may attempt to get around the system via tax evasion or tax avoidance. These are two different concepts, tax avoidance is legal, while tax evasion, well that’s an offence.
Tax avoidance is when an individual secures a tax advantage via legal means. To achieve this, the individual must know about the tax regulation and tax system to get an allowable tax benefit.
On the flip side, tax evasion involves unlawful ways to avoid paying taxes and is a criminal offence. This includes things like under-reporting or not reporting income, misrepresentation of tax reporting, and/or the transferring of profits without commercial reason, and/or over-claiming of expenses.
The Inland Revenue Authority of Singapore (IRAS) frowns upon both tax evasion and aggressive tax avoidance. Together with other tax regulatory bodies around the world, these authorities would actively tackle tax evasion through investigations and auditing, to ensure that taxes are paid up and punishments for tax evaders.
9 Steps to Avoid Committing Tax Evasion for Companies
A company will be held responsible for the actions of its staff if they were found to be carrying out any activities that are seen as evading taxes. If you own a company in Singapore, here are the things you should look out for to avoid committing tax evasion.
- Conduct checks. If the company is lenient against those who have committed tax offences, it can also be held responsible for not taking legal actions.
- Encourage staff to report any acts of tax evasion within the company to you or your HR team.
- Make sure that the company has documents including audits to show that it has adopted measures to deter tax evasion from being committed.
- Send your employees for training so they understand the penalties of tax evasion.
- Inform your employees the differences between tax avoidance and tax evasion, one is legal, the other is not.
- Make sure that your staff are fully aware of the government penalties and legal actions that can be taken against them or the company, if they try to evade taxes.
- Make it a point to screen your customers' tax compliance status, or do a check with government authorities.
- Assess who you go into business with, to avoid possible penalties as a result of such partnerships.
Conclusion
The tax system is in place to maintain a country's economy and create a socio-economic balance among people of different statuses. To combat tax evasion, harsh penalties are necessary to deter individuals or companies. Make sure you stay on top of things to avoid being charged with tax evasion penalties. From registering your company to getting help with Corporate Secretarial services, you’ll get your papers in order and eliminate chaos. We track deadlines, file reports and make sure you don’t have to worry about compliance.
