Tax Evasion in Singapore: Penalties and Examples
There is a saying that the only two certainties in life are death and taxes. Nonetheless, there is a small percentage of people in Singapore who evade their taxes, intentionally or otherwise.
This article will help you understand more about what is considered tax evasion and the penalties for evading taxes in Singapore. It will cover:
- What is tax evasion
- How tax evasion is different from tax avoidance
- The penalties for evading tax in Singapore
- How tax evaders are sentenced in Singapore
- How to report suspected cases of tax evasion
- The voluntary disclosure of past tax evasion
What is Tax Evasion?
In Singapore, tax evasion happens when a person intentionally gives the tax authority, the Inland Revenue Authority of Singapore (IRAS), false or incomplete information to illegally reduce his or her tax liability and/or obtain undue tax credits and refunds.
Under the Income Tax Act, tax evasion may occur when a person intentionally:
- Fails to accurately report all assessable income when filing taxes, such as by under-reporting or not reporting his or her income;
- Claims tax deductions for expenses that were not incurred (e.g. creating fake invoices or false entries, or hiring phantom employees);
- Claims tax deductions for expenses that do not qualify for tax deductions (e.g. deductions on private motor car expenses or inflated payments to related parties of the company); or
- Claiming personal relief for dependents who do not exist.
For example, two Singaporean directors of a plastic card company were convicted of tax evasion for under-declaring their income. This resulted in $188,622 in tax lapses for one director, and $53,021 for the other, between 2009 and 2016. The first director received a 12-week jail term and a penalty of $208,309, while the second director received a 4-week jail term and a penalty of $63,585. They were also each ordered to pay $3,332 in penalties and fined $2,000 for failing to register their company for GST.
Under the Goods and Services Tax (GST) Act, tax evasion may also occur when a person:
- Claims input tax on fictitious purchases;
- Omits output tax charged on local taxable supplies;
- Prepares false books of accounts or records; or
- Claims tourist refunds when not entitled to do so.
For instance, a furniture business partner was convicted of tax evasion for failing to register her furniture company for GST. This caused an undercharging of $246,490’s worth of GST, for which she was sentenced to 10 weeks’ jail and ordered to pay a penalty of $237,426. For failing to register her company for GST, she was additionally ordered to pay a penalty of $24,649 and a fine of $4,000.
You are also reminded that there is no time bar for tax evasion crimes. This means that IRAS can investigate you for tax evasion even if it is alleged to have happened many years ago. While the statutory time limit for IRAS to conduct assessments is 4 years, this time limit does not apply to fraud, such as where there is intention to evade tax.
Tax Evasion vs Tax Avoidance: What’s the Difference?
While tax evasion is illegal, tax avoidance generally is not as it uses legal methods to obtain tax advantages or legally reduce tax liability.
Nevertheless, IRAS does not view aggressive tax avoidance favourably, and is empowered to disregard or alter any arrangements with the main purposes of tax avoidance. Arrangements with the main purposes of tax avoidance include:
- Circular flow or round-tripping of funds;
- Setup of more than one entity for the only purpose of receiving tax advantages;
- Changes in the form of business entity for the sole purpose of receiving tax advantages; and
- Attribution of income that is not aligned with economic reality (e.g. if the person receiving income has not done anything to justify receiving it).
However, bona fide commercial arrangements are excluded from tax avoidance scrutiny so long as they had not been carried out with the objective of exploiting tax exemptions or concessions. Bona fide arrangements include genuine commercial transactions such as:
- Placing monies in a local bank or a bank outside Singapore;
- Providing housing accommodation to employees directly rather than giving a taxable housing allowance; or
- Not remitting foreign income.
What are the Penalties For Evading Tax in Singapore?
For tax evasion
IRAS takes a serious stance on tax evasion and non-compliance with tax laws.
If you are found guilty of tax evasion, you will be liable to a penalty of 3 times the amount of tax undercharged and/or the amount of tax benefit obtained. This is in addition to a fine of up to $10,000 and/or a jail term of up to 3 years.
For serious fraudulent tax evasion
Falsification of books of accounts and records, or committing any kind of fraud to evade tax, are considered more serious forms of tax evasion.
If you are found guilty of such serious fraudulent tax evasion, you will be liable to a penalty of 4 times the amount of tax undercharged and/or the tax benefit obtained. You will also face a fine of up to $50,000 and/or a jail term of up to 5 years.
For GST evasion
If you are found guilty of GST evasion, you will be liable to a penalty of 3 times the amount of tax undercharged. You will also be liable to a fine of up to $10,000 and/or a jail term of up to 7 years.
For giving incorrect information about tax liability
Even if you had no intention to evade taxes, you may still be penalised for giving incorrect information about tax liabilities. It is an offence to make an incorrect tax return or give any incorrect information about your, or any other person’s, tax liabilities negligently or without reasonable excuse.
If found guilty of giving incorrect information about your tax liabilities, you will be liable to a penalty of 2 times the amount of tax undercharged and/or the tax benefit obtained, a fine of up to $5,000 and/or a jail term of up to 3 years.
How are Tax Evaders Sentenced in Singapore?
Upon receiving information internally or through an informer, IRAS will first investigate to determine if any tax offences have been committed. If you are suspected to have committed tax evasion offences, you may be arrested and convicted.
Since June 2021, the High Court in Tan Song Cheng v Public Prosecutor has imposed a five-step sentencing framework to sentence persons convicted of tax evasion. The framework is as follows:
Step 1: Identify the level of harm and the level of culpability
The court will look at the following non-exhaustive factors to determine the severity of harm caused to the State (as the State suffers if people do not pay the rightful amount of tax), and the culpability of the offender.
|Factors relating to harm caused:
||Factors relating to culpability:
For example, furniture business partner Lin Shaohua had instructed her employee to reduce reported sales below the $1 million threshold. Her reported partnership income was thus correspondingly reduced, and her personal income was under-reported, resulting in $79,142.13 tax undercharged.
However, since Lin had merely reduced the sales figures rather than use deceit to disguise the figures, her scheme was considered to be unsophisticated, and she was hence considered to have low culpability.
The court further classified the amount of tax evaded into 3 bands of:
- Level 1 harm: Less than $75,000;
- Level 2 harm: $75,000-$150,000; and
- Level 3 harm: More than $150,000.
For example, silkscreen company director Tan Song Cheng was hauled up to court for evading tax of between $34,000 to $35,000, which was labelled as Level 1 harm.
The harm level may be recalibrated in the third step of the framework later.
Separately, as there can be significant overlap between various factors going towards culpability, the court will not double count the culpability factors such that the offender will be punished twice for the same crime.
Step 2: Identify the applicable indicative sentencing range
The court used the sentencing matrix below, but also recognised that the matrix is not fixed as the average income of the population will change over time.
|Culpability / Harm||Level 1 harm
(below $75,000 tax evaded)
|Level 2 Harm
($75,000 – $150,000 tax evaded)
|Level 3 Harm
(Above $150,000 tax evaded)
|Low culpability||Fine or up to 6 months’ jail||6 – 12 months’ jail||12 – 18 months’ jail|
|Moderate culpability||6 – 12 months’ jail||12 – 18 months’ jail||18 – 24 months’ jail|
|High culpability||12 – 18 months’ jail||18 – 24 months’ jail||24 – 36 months’ jail|
A fine would be imposed where the mandatory treble penalty (3 times the tax evaded) has a sufficient deterrent effect on the offender, such as when the amount of tax evaded is in the lower range.
While a jail term may not necessarily be imposed, a jail term would normally be imposed to deter offenders where the fine would have little or no deterrent effect. This could be where the amount of tax evaded would result in a mandatory penalty that exceeds the maximum fine, diminishing the deterrent effect of the maximum fine.
Step 3: Identify the appropriate starting point within the indicative sentencing range
The court will identify the appropriate starting point in the matrix and then re-examine the offence-specific factors to determine the indicative starting sentence.
For example, the tax evasion committed by Lin Shaohua offence was characterised as “Level 2 harm”, which would have attracted a jail term of 6-12 months. However, due to her low culpability, her indicative starting sentence was adjusted downwards to 16 weeks, even though this was outside the indicative sentencing range.
Step 4: Make adjustments to the starting point to take into account offender-specific factors
The following non-exhaustive offender-specific aggravating and mitigating factors can then be used to further adjust the indicative starting sentence (identified following the first 3 steps):
For Lin Shaohua, she had had an additional charge of tax evasion taken into consideration for the purpose of sentencing, which acted as an aggravating factor. However, her plea of guilt, cooperation during investigations, and making of full restitution all served as mitigating factors, resulting in her 16-week jail term being reduced to 10 weeks.
Step 5: Make further adjustments to take into account the totality principle
Lastly, the court will consider the totality principle, which is to take a final look at all the facts and circumstances to ensure that the aggregate sentence is sufficient and proportionate to the offender’s overall wrongdoing.
This involves examining if the aggregate sentence is substantially above the sentences normally meted out for the most serious of individual sentences committed. The court would then consider whether the effect of the sentence on the offender is overly excessive and not commensurate with his or her past record and future prospects.
As only one charge had been proceeded with in Lin’s case, the court did not see a need to further adjust her 10-week sentence based on the totality principle.
How Can You Report Suspected Cases of Tax Evasion?
If you want to report someone who has evaded tax in Singapore, or you have information about tax-related fraudulent activities, you may contact IRAS by email or post. Information you can provide include the:
- Particulars of the tax-evading individual or business;
- Method of tax evasion and how the activities were conducted;
- Amount evaded and year(s) involved;
- Supporting documentary evidence showing tax evasion (e.g. ledger accounts, invoices, payment records, etc.) or a description or locations of such evidence; and
- Explanation of how and when you became aware of the tax evasion.
Your identity and all information provided would be kept confidential. IRAS will then review all information provided and decide whether to investigate the matter further. However, it will not be able to provide you with updates on whether it has decided to launch tax offence investigations, or how its investigations are going.
You may also specifically request for a reward in relation to the information provided. The reward is pegged at 15% of the tax recovered and capped at $100,000. However, it will be given only if the information you provided had led to the recovery of tax that would otherwise have been lost.
Voluntary Disclosure of Past Actions to Evade Tax
If you realise that you have made errors in your tax returns due to carelessness, the Voluntary Disclosure Programme (VDP) enables you to compound the matter if you meet the qualifying conditions.
Such conditions include you voluntarily coming forward to correct your errors. You would also have to make the disclosure accurately, completely and in a timely manner i.e. before you receive a query from IRAS relating to your tax matter, or before you receive notifications from IRAS on the commencement of an audit or investigation on your tax matters.
Lastly, you must cooperate fully with IRAS to correct the errors made and pay the additional amount and/or any penalties imposed.
If your matter is compounded, your charge would be settled, and you would be effectively acquitted of the offence. IRAS may also reduce your penalties depending on when the voluntary disclosure was made and whether the qualifying conditions are met.
For instance, if you voluntarily disclose errors inadvertently made in your tax filings within 1 year from the statutory filing deadline, no penalty would be imposed on you. On the other hand, for voluntary error disclosures made after this 1-year period, a reduced penalty of 5% of the income tax undercharged will be imposed.
Separately, if you voluntarily disclose your intention to evade taxes or obtain excessive tax benefits, you may be able to compound the matter at a penalty rate of 200% in lieu of prosecution. However, if you do not meet the qualifying conditions (mentioned above), you may still be prosecuted for tax evasion.
Tax evasion is a serious offence that is not condoned by the IRAS. You are reminded to file your taxes correctly (or correct them voluntarily if they are false or inaccurate) and be mindful of the offences and penalties that may be imposed for tax evasion. If you need assistance with filing your taxes correctly, you are encouraged to consult a tax specialist.
On the other hand, if you have been charged with tax evasion, you may wish to engage a criminal defence lawyer who will be able to advise you on your next steps and, if necessary, represent you in court to seek a fair outcome for your case.
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