Though death and taxes are often cited as life’s only certainties, some individuals in Singapore still attempt to evade taxes—either deliberately or unknowingly. This summary outlines what qualifies as tax evasion, how it differs from tax avoidance, and the consequences of such actions.
What Is Tax Evasion?
Tax evasion in Singapore occurs when someone intentionally provides false or incomplete information to the Inland Revenue Authority of Singapore (IRAS) to illegally reduce their tax burden or claim unwarranted tax benefits.
Common forms include:
- Underreporting income
- Falsifying claims for deductions or expenses
- Claiming reliefs for non-existent dependents
- Not registering for GST despite meeting the threshold
- Making false GST claims or preparing fake accounts
Examples:
- An undertaker was fined and penalized for underreporting income and failing to register for GST.
- A car importer used false declarations to avoid duties and GST, resulting in millions in lost revenue and a hefty penalty.
Note: There is no time limit on investigating tax evasion, even if it occurred many years ago.
Tax Evasion vs Tax Avoidance
- Tax evasion is illegal and involves deception.
- Tax avoidance, while legal, involves exploiting loopholes or tax rules to reduce liability.
IRAS can reject aggressive tax avoidance schemes that serve no genuine commercial purpose, such as:
- Creating shell entities
- Circular transactions
- Income misattribution
However, legitimate business decisions (e.g., placing money overseas, not remitting foreign income) are not treated as avoidance.
Penalties for Tax Offences
- Income tax evasion: Up to 3x the tax underpaid + $10,000 fine and/or 3 years’ jail.
- Serious fraud: Up to 4x the tax underpaid + $50,000 fine and/or 5 years’ jail.
- GST evasion: Up to 3x the tax underpaid + $10,000 fine and/or 7 years’ jail.
- Incorrect tax info (even without intent): Up to 2x the tax underpaid + $5,000 fine and/or 3 years’ jail.
How Tax Evaders Are Sentenced
The Tan Song Cheng case introduced a five-step sentencing framework:
- Assess harm and culpability
Factors include the tax amount evaded, use of fraud, role in syndicates, and planning involved. - Determine indicative sentencing range
Based on harm level (amount evaded) and culpability:
- Less than $75k: Level 1
- $75k–$150k: Level 2
- Above $150k: Level 3
- Less than $75k: Level 1
- Set starting sentence
Adjusted within the suggested jail term or fine range. - Consider individual factors
Mitigating: cooperation, restitution, guilty plea.
Aggravating: prior offences, multiple charges. - Apply totality principle
Ensures the overall sentence is fair and not excessively harsh.
Reporting Tax Evasion
Suspected tax evasion can be reported to IRAS through various channels. Required details include:
- Personal/business info of the suspect
- Description of the evasion method
- Evidence or documentation
- How you became aware
Reports are confidential, and informants may receive a reward of 15% of the recovered tax, capped at $100,000.
Voluntary Disclosure Programme (VDP)
Taxpayers who realize they’ve made honest errors can voluntarily disclose them under the VDP. To qualify:
- The disclosure must be voluntary, complete, and made before IRAS contacts you.
- Full cooperation is required.
- If accepted, penalties may be waived or reduced.
For serious intentional evasion, voluntary disclosure can still result in compounding at a 200% penalty, avoiding prosecution if criteria are met.
Conclusion
Tax evasion is a serious offence with harsh penalties in Singapore. IRAS encourages compliance and offers avenues for rectification through voluntary disclosure. When in doubt, consulting a tax professional is advisable.