An audit involves understanding your business to ensure that the information in the tax return provided to us is accurate; for example, ensuring that your revenue or income is accurately declared or expenses are deductible for tax purposes. Our audits are conducted on a risk-based approach. Being selected for an audit does not necessarily mean that you have made a mistake.
Our audit programme serves the following purposes:
- Identify taxpayers who have made mistakes in their tax returns
- Educate taxpayers on their tax obligations and how to comply
- Identify tax laws, policies and processes where we can simplify or clarify
On this page:
What can taxpayers expect during an audit?
In conducting audits, it is important to us that there is minimal disruption to taxpayers’ business operations. Field visits are carried out with the cooperation of taxpayers, after notifying taxpayers by way of letter, email or telephone call. We will inform taxpayers of the timing of audit, and the documents/books that IRAS will examine during the audit. We will also inform the taxpayer of the Years of Assessment to be audited primarily. The taxpayer’s tax representative may attend the initial interview and any subsequent interviews.
To enable taxpayers to identify our tax officers, we carry authority cards issued by IRAS. Should you require confirmation on the identity of the holder, please call IRAS on 6351 2044 or 6351 2046. Usually, the field visit is conducted by a team of three to four tax officers.
The field visit usually starts with an initial interview to obtain the following background information:
- the size and nature of the taxpayer’s business
- the operations of the business
- organizational structure including duties of key management personnel
- the accounting and book-keeping procedures and internal control procedures used within the business
In some cases, our tax officers may need to meet the key personnel or employees of the taxpayer’s business in order to obtain or confirm information concerning its operations.
When examining books and records, the tax officers would usually require information pertaining to chart of accounts, accounting books and records, general ledgers, journals, external auditor’s audit adjustments, source documents, bank statements, minute of meetings and supporting schedules for the preparation of tax returns.
Where accounting information is stored in electronic format, our tax officers may request the taxpayer to make available specified information before the date of the audit.
The length of the audit depends on the taxpayers’ standard of record keeping, the degree of compliance and the scope of the audit. The audit may last from one to three days.
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What does IRAS expect from taxpayers during an audit?
During the audit, we will require your co-operation in the following ways:
- Providing us with full access to your premises, records and documents;
- Make available a room or working space for the auditors to conduct the examination of books and records;
- Allowing us to interview operational staff or process owners;
- Allowing us to make copies/ obtain extracts of records and documents;
- Provide timely, complete and accurate replies to our requests for information; and
- Be truthful and honest in your dealings with us. Full disclosure of irregularities and omissions should be made at the earliest possible time.
Under Section 98 of the Income Tax Act, it is an offence for any person to obstruct or hinder any officer acting in the discharge of his duty under the Income Tax Act. Any person guilty of this offence is liable to a fine of up to $1,000 and imprisonment of up to six months (in default of payment).
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What happens at the conclusion of an audit?
An audit may take a period of six months to a year to be completed. The progress of an audit depends to a large extent not only on the complexity of the taxpayer’s business affairs, but also on the support and cooperation of the taxpayer and his tax representative.
On completing the audit, we would usually communicate by writing or arrange for a meeting at IRAS to inform you the outcome of our audit. If any adjustment(s) is to be made to your tax assessment(s), we will explain to you the basis of our adjustment. Issues are discussed with a view to reaching a mutually acceptable conclusion. We will also advise you on areas in which you could make improvements to better comply with the tax laws.
Under Section 95(2) of the Income Tax Act, any person who negligently or without reasonable excuse makes an incorrect Income Tax Return or gives any incorrect information in relation to any matter affecting his own liability to tax or the liability of any other person or of a partnership may be liable to a penalty of twice the amount of tax undercharged. Serious cases of omission or errors may be subject to court prosecution. During the meeting, the reasons for mistakes or errors made and proposed penalty would also be discussed.
As a follow-up to the meeting at IRAS, if there is an offence under Section 95 we would issue the Notice(s) of Additional / Amended Assessment and an Offer of Composition. If you disagree to the Notices of Additional Assessments, you have to object in writing within 30 days, stating the specific grounds of objection as required under Section 76 of the Income Tax Act. Notwithstanding any objection, the tax payable must be paid within one month from the date of the Notice of Assessment.
The Section 95 offence refers to an offence when the taxpayer makes an incorrect return by omitting or understating income or gives any incorrect information related to any matter affecting his own tax liability or the liability of any other person or of a partnership.
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What can I do to improve my compliance?
To improve your compliance with the tax laws, your are encouraged to :
- Engage personnel with sound income tax knowledge (e.g. have attended Income Tax Courses conducted by the Tax Academy) and adequate experience;
- Practise good record-keeping;
- Use computerised accounting system. If you are a GST-registered business, you are eligible for a subsidy for the purchase any of the accounting software listed in IRAS' Accounting Software Register. Please refer to Infocomm@SME for details.
- Have good internal controls;
- Conduct periodic reviews of your returns and to disclose any error voluntarily. For a start, you may go through the “List of Common Errors made”. Penalty can be reduced for a mistake reported voluntarily which meets the qualifying conditions under IRAS’ Voluntary Disclosure Programme.
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Recent audit activities and results
We will not hesitate to take enforcement actions against non-compliant businesses to ensure that all taxpayers pay their fair share of taxes.
One of the audit projects that we have completed recently is the review of companies engaged in the medical profession. Of the 45 medical practitioners audited between 2006 and 2009, 51% made errors in their tax declarations. The income under-declared ranged from $35,000 to $3.6 million. We also recovered $6 million in taxes and penalties from the 23 taxpayers, with the highest amount of taxes recovered being $1.2 million.
For IRAS’ past and ongoing audit attention, please refer to Compliance Focus on Companies.