Tax Investigation in Singapore - What do you need to do?
Tax investigation is an in-depth investigation processed by a tax authority, usually from the Inland Revenue Authority of Singapore (IRAS) to cover issues on Individual Income Tax, Corporate Company Income Tax, GST and other types of tax. At its simplest, it aims to uncover full facts to determine whether any tax offences or fraud have been committed by a taxpayer. It is then done to recover tax undercharged from a Singapore taxpayer in previous years of assessment.
However, a tax investigation may also occur based on random sampling, which is, through the selection of a subset of individuals from the whole population in Singapore. Although it would be most desirable to avoid being selected through this method or be subject to tax investigation altogether, it is unavoidable to be ‘raided’ by IRAS at times.
So here’s what you need to do in case a tax investigation takes place on your business premises. We’ll explore the conduct of investigation, the dos and don’ts during the conduct, and the penalties that may arise when tax offences have been committed. Without further ado, let’s begin.
1. Conduct of investigation
It’s emotionally and psychologically stressful to have your premises raided, especially taking into consideration that the investigation may take about 15 to 24 months to complete under the normal circumstances. This means some disruption to your business operations is to be expected during these brief periods. Also, unlike desk audit or field audit where prior notice is given to you, tax investigation usually comes as a surprise visit so even if you’re not present at the premises, the tax investigators will still proceed with the investigation.
Normally, the investigation may be conducted in the following manner:
- Tax investigators from IRAS may first make a surprise visit to your business premises to ask for your accounting records, source documents and other relevant documents, both paper and electronic.
- Simultaneous surprise visits may also be made to your residence, accountant’s office and/or other relevant third parties.
- The computer forensic experts may “clone” the computer records to preserve as admissible evidence in court. Tax investigators may also inspect, copy/photograph and take possession of the books, records, data and documents, where necessary.
- Searches may be conducted. The cash in your safe deposit box may be counted and recorded for off-the-books cash transactions.
- Interviews may be made with you, your family members, your staff, your accountant and/or other relevant third parties.
If you're under investigation for potential offences or fraud, your tax investigators may also obtain information or verify information with other third parties such as government agencies, banks and financial institutions, foreign tax authorities, etc.
2. What to do?
- Give the tax investigators your cooperation and do not obstruct them from performing their duties.
- Ensure that all the information provided by you is true and correct. If you’re sure of the answers, you can tell them on the spot. If you’re unsure or unable to recall, you have the right to confirm with them later.
- Engage an experienced tax agent to increase your chances of resolving it out-of-court.
- Hinder or obstruct the tax investigators in carrying out their duties. A person guilty of such offence, shall be liable on conviction to a fine not exceeding S$5,000 or to imprisonment for a term not exceeding six months or both.
- Hesitate to ask the tax investigators to identify themselves with their authority cards, which will indicate their full name as well as the legislative powers which they are able to exercise.
In Singapore, tax evasion or fraud is a criminal offence that is punishable under the law. IRAS is therefore strict when it detects any error/omission/discrepancy in tax returns during the length of investigation. Where there’s error/omission/discrepancy made without any intention to evade taxes, the taxpayer may face:
- A penalty up to 200% of the amount of tax undercharged;
- Be fined up to S$5,000; and/or be imprisoned up to three years.
If the intention of the taxpayer was to evade taxes, the taxpayer may face:
- A penalty up to 400% of the amount of tax undercharged;
- Be fined up to S$50,000; and/or be imprisoned up to seven years.
It is important to note that taxpayers may be penalised for errors in their tax returns, regardless of whether they had any intention to evade taxes. So if you want to reduce the risk of tax investigation, it is best to ensure that accurate financial records are maintained and taxes are filed meticulously.
Contact us to conduct a “Health Check” on your tax affairs.
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