Tax evasion is a serious offence in Singapore, with strict penalties for those who attempt to cheat the system.
The Inland Revenue Authority of Singapore (IRAS) enforces tax laws rigorously, ensuring compliance through audits, investigations, and legal action against offenders.
Understanding what constitutes tax evasion, its legal consequences, and real-world examples can help individuals and businesses stay on the right side of the law.
Defining Tax Evasion In Singapore
Tax evasion involves deliberately providing false or incomplete information to IRAS to reduce tax liabilities or unlawfully obtain tax refunds. This intentional act undermines the tax system and is prosecutable under Singapore law.
Common Forms of Tax Evasion include:
- Underreporting Income: Failing to declare all sources of income, including freelance earnings, side businesses, or overseas income.
- Inflating Deductions or Expenses: Claiming deductions for non-existent or personal expenses not related to business operations.
- Falsifying Records: Creating fake invoices or financial statements to misrepresent financial positions.
- Non-Compliance with GST Requirements: Failing to register for Goods and Services Tax (GST) when required or not remitting collected GST to IRAS.
For example, In 2019, two directors of Candid Electric, Foo Ming Chee and Lim Kim Wah, were convicted of tax evasion for falsely claiming personal expenses such as luxury items and family holidays, as business expenditures in their company’s tax returns from 2006 to 2010, resulting in $175,545 in underpaid taxes.
Foo was sentenced to one month’s jail and fined $440,309 (three times the tax evaded), while Lim received six months’ jail and a $587,079 fine (four times the tax evaded).
Their company, Candid Electric, was also fined $4,000 and penalised $36,411 for submitting incorrect tax returns, violating the Income Tax Act.
Tax Evasion vs Tax Avoidance: Key Differences
Both tax evasion and tax avoidance aim to reduce tax liabilities, but they differ in legality and consequences.
- Tax Evasion (Illegal): This involves deliberate misrepresentation or concealment to avoid paying taxes, such as underreporting income, inflating expenses, or hiding assets. It is a criminal offence in Singapore, punishable by heavy fines and imprisonment.
- Tax Avoidance (Legal, But Monitored): This uses lawful strategies to reduce tax liabilities, such as claiming deductions or structuring business operations efficiently. However, if an arrangement is primarily designed to exploit tax benefits without genuine commercial purpose, it may attract scrutiny from the IRAS.
IRAS has the authority to disregard or adjust transactions if they serve no real economic purpose other than tax reduction. Red flags include:
- Circular transactions with funds moving in loops
- Setting up multiple entities solely to gain tax benefits
- Changing business structures without valid commercial reasons
- Assigning income in a way that does not reflect actual economic activity
Conversely, legitimate commercial transactions such as depositing funds in a foreign bank, directly providing employee housing, or keeping foreign income overseas are not considered tax avoidance.
Penalties For Tax Evasion In Singapore
Singapore enforces strict penalties on tax evasion to maintain a fair tax system and deter fraudulent activities. Depending on the severity of the offence, penalties can include hefty fines, imprisonment, or both.
Under Singapore’s Income Tax Act, specifically Section 96(1), individuals or entities found guilty of tax evasion are subject to:
- Penalty: Up to three times the amount of tax underpaid.
- Fine: Up to $10,000 and/or imprisonment up to three years.
For serious fraudulent evasion, such intentionally evading tax by involving falsification of records or deliberate deception:
- Penalty: Up to four times the amount of tax underpaid.
- Fine: Up to $50,000 and/or imprisonment up to five years.
Goods and Services Tax (GST) Act
Intentionally providing false information in GST returns is a serious offence under Section 62 of the GST Act. Those found guilty may face:
- Penalty: Up to three times the amount of tax underpaid.
- Fine: Up to $10,000 and/or imprisonment up to seven years.
Providing Incorrect Tax Information
Providing incorrect information about tax liabilities, even without intent to evade taxes, can still result in penalties.
Submitting an inaccurate tax return or misrepresenting tax details—whether for yourself or someone else—due to negligence or without a valid reason is considered an offence.
- Penalty: Up to two times the tax underpaid.
- Fine: Up to $5,000.
- Imprisonment: Up to three years, or both.
What Happens If You Are Caught For Tax Evasion In Singapore?
Tax evaders in Singapore are sentenced based on the severity of their offence, taking into account factors such as the amount of tax evaded, intent, and level of deception.
The IRAS conducts investigations and, if evidence of evasion is found, the case may be prosecuted in court.
Since June 2021, the High Court has established a five-step sentencing framework (Tan Song Cheng v Public Prosecutor) to ensure consistency and fairness in penalties.
Step 1: Assessing Harm And Culpability
The court first evaluates the degree of harm inflicted on the state, as unpaid taxes reduce public funds. Key factors include:
- Tax Amount Evaded: The larger the sum, the greater the harm.
- Use of Criminal Networks: If a syndicate is involved, the offence is considered more severe.
- Cross-Border Transactions: Hiding taxable assets through offshore accounts or complex corporate structures increases the offence’s gravity.
The offender’s culpability is then assessed based on:
- Degree of Planning: Deliberate, premeditated evasion is treated more harshly than impulsive acts.
- Sophistication of Methods: The use of shell companies, fraudulent bookkeeping, or offshore transactions aggravates the offence.
- Abuse of Trust: Professionals, such as accountants or company directors, who misuse their position to evade taxes face harsher penalties.
For instance, a business owner who merely underreported sales may receive a lighter penalty compared to one who falsified financial records to avoid detection.
Step 2: Determining The Sentencing Range
Once harm and culpability are established, the court refers to a sentencing framework that aligns punishment with the seriousness of the offence.
Lower tax evasion cases: Tax evasion involving less than $75,000 may result in a fine or a short jail term.
Moderate cases: For amounts between $75,000 and $150,000, offenders typically face 6 to 18 months in prison.
Severe cases: Cases exceeding $150,000 in evaded taxes can lead to up to three years of imprisonment.
Fines are typically imposed when the mandatory penalty of three times the evaded tax acts as a sufficient deterrent.
However, if the evaded sum is high enough that a fine would not serve as an effective punishment, the court is likely to impose a custodial sentence.
Step 3: Identifying The Starting Point For Sentencing
The court then determines the baseline sentence within the identified range. If the offender’s actions involve additional deceptive measures, such as falsified documents or hidden transactions, the sentence may be adjusted upwards.
Conversely, if the evasion was unsophisticated or opportunistic, the penalty may be lowered.
For example, a business owner found guilty of evading $80,000 in taxes may face a 6 to 12-month jail term under standard guidelines. However, if they fully cooperated with authorities and had no prior offences, the sentence could be reduced.
Step 4: Considering Aggravating And Mitigating Factors
The court further adjusts the sentence by reviewing offender-specific factors that may increase or reduce the severity of the penalty.
Aggravating Factors (Which Increase Sentences):
- Prior tax offences.
- Lack of remorse or continued non-compliance.
- Multiple tax evasion charges considered in sentencing.
Mitigating Factors (Which Reduce Sentences):
- Early guilty plea, indicating acceptance of wrongdoing.
- Full repayment of evaded taxes before prosecution.
- Cooperation with authorities during investigations.
For instance, if an offender voluntarily repays the full tax shortfall and pleads guilty at the earliest opportunity, the sentence may be reduced significantly.
Step 5: Applying The Totality Principle
Lastly, the court evaluates the overall fairness of the sentence, ensuring it is proportionate to the wrongdoing and not excessively punitive.
This review considers:
- Whether the punishment aligns with similar offences.
- The impact on the offender’s future (e.g., if the sentence is overly harsh given their past record).
If multiple tax evasion charges are involved, the court ensures the final sentence does not disproportionately exceed what is typically imposed for the most serious individual charge.
For example, if an offender is sentenced to 10 weeks in jail for evading $90,000 in taxes, the court will review if additional factors warrant further reductions or increases.
How To Avoid Tax Evasion
Avoiding tax evasion is straightforward, maintain accurate records, follow tax laws, and report all taxable income. Here are key steps to stay compliant:
1. Keep Accurate Financial Records
Maintain clear and detailed records of income, expenses, and tax-related transactions for at least five years. Ensure all financial statements, invoices, and receipts are properly documented.
2. Report All Income Sources
Declare all earnings, including salary, business profits, rental income, freelance work, and overseas earnings. Failing to report any source of income, even unintentionally, can lead to penalties.
3. File Tax Returns On Time
Late or missed tax filings can raise red flags with the IRAS. Submit tax returns accurately and before the deadline to avoid unnecessary scrutiny.
4. Understand Tax Obligations
Know what taxes apply to you, whether it’s personal income tax, corporate tax, or GST. If you’re a business owner, ensure you register for GST if your revenue exceeds $1 million annually.
5. Claim Only Legitimate Deductions
Ensure all tax deductions and reliefs are valid and properly substantiated. Inflating expenses or claiming non-business-related costs can be considered tax evasion.
6. Use The Voluntary Disclosure Programme (VDP)
If mistakes are made in tax filings, IRAS offers the Voluntary Disclosure Programme (VDP), allowing taxpayers to correct errors with lower penalties. Early disclosure can prevent severe penalties or prosecution.
Conclusion On Tax Evasion In Singapore: Penalties And Examples
Tax evasion is a serious offence in Singapore, carrying severe legal consequences, including fines and imprisonment. Avoiding tax evasion requires accurate financial reporting, proper tax planning, and professional guidance to prevent costly legal repercussions.
At Tembusu Law, our team of experienced corporate and commercial lawyers is committed to helping individuals and businesses navigate tax-related legal matters.
Whether you’re facing investigations for tax evasion, need assistance with voluntary disclosure, or require expert guidance on tax compliance, we provide tailored legal solutions to protect your rights and interests.
Don’t leave your legal matters to chance. Contact us today for a confidential consultation and get the trusted legal support you need.
Frequently Asked Questions About Tax Evasion in Singapore: Penalties and Examples
Should Businesses Register For GST To Avoid Tax Evasion Charges?
Businesses with an annual taxable turnover exceeding $1 million are legally required to register for GST. Failure to do so is considered non-compliance, which can result in penalties, fines, and legal action. Voluntary GST registration may be beneficial for businesses below the threshold, depending on their operational needs.
Are Offshore Accounts Considered Tax Evasion In Singapore?
Holding offshore accounts is not illegal, but using them to hide taxable income or evade taxes can lead to prosecution. IRAS has agreements with international tax authorities to track offshore assets and undisclosed income. Failure to report foreign income can result in significant penalties and legal consequences.
How Does IRAS Detect Tax Evasion?
IRAS employs data analytics, third-party reporting, and audits to identify suspicious financial activity. Cross-checking tax filings with bank records, corporate statements, and international financial transactions helps detect discrepancies. Whistleblower reports and anonymous tip-offs also contribute to enforcement actions.
When Can Tax Evasion Lead To Jail Time?
Jail terms are typically imposed for serious offences, such as large-scale tax fraud, falsification of financial records, or involvement in syndicates. Cases with a high level of premeditation and deception are more likely to result in imprisonment. The court may also impose custodial sentences where fines alone are insufficient as a deterrent.
Should Employees Be Concerned if Their Employers Are Evading Taxes?
Employees may face legal consequences if they knowingly assist or participate in their employer’s tax evasion scheme. Whistleblowers who report tax evasion may be protected under the law and could be eligible for monetary rewards if tax recovery is successful. It is advisable to report suspected tax fraud to IRAS rather than risk legal liability.
When Should A Business Seek Professional Tax Advice?
Businesses should seek tax advice when dealing with complex tax matters, such as international transactions, GST registration, corporate restructuring, or tax deductions. Consulting tax professionals can help avoid compliance risks, penalties, and potential audits. Early guidance ensures accurate reporting and minimises exposure to legal consequences.
