Under the Income Tax Act, taxpayers may face the following
consequences depending on whether there is evidence indicating intention to
evade taxes:
Without intention to evade taxes
a. Penalty
up to 200% of the amount of tax undercharged;
b. Fine
up to $5,000; and/or
c. Imprisonment
up to
three years
With intention to evade taxes
a. Penalty
up to 400% of the amount of tax undercharged;
b. Fine
up to $50,000; and/or
c.
Imprisonment
up to
five years
IRAS will notify taxpayers of the penalty
amount and due date for payment of penalty. IRAS will also explain the reason
for imposing the penalty.
For cases where there is no evidence of
any intention to evade taxes, IRAS will decide on the penalties for errors in
tax returns by considering if taxpayers have been compliant with their tax
responsibilities, or if they have committed errors with negligence and/or
without reasonable excuse.
Possible indicators of negligent behaviour include:
-
Taxpayer
has committed an offence on the same issue or a similar issue;
- Taxpayer
has received prior information from IRAS or advice from his tax agents
informing him of the correct tax treatment;
- Taxpayer
has good knowledge of tax laws (e.g. taxpayer is a tax agent / accountant) but
submits an incorrect tax declaration; or
- Taxpayer
does not keep proper records and accounts of its business transactions
Bad compliance history is an aggravating factor when IRAS decides on the penalty for the tax offences. A taxpayer is considered to have a bad compliance history if the taxpayer has two bad compliance records within two years before the completion of the audit.
Bad compliance records include:
-
late
payment of taxes due;
- late
filing of Estimated Chargeable Income (ECI);
- late
filing of tax return; and
- previous
omission of income, giving of incorrect information or wrongful claim of relief
/ expense.
Being uncooperative during an audit is an aggravating factor that IRAS will take into consideration when deciding on the penalty for the tax offences. A taxpayer is considered to be uncooperative during audit when:
-
Taxpayer
does not respond to audit queries in a timely manner and has no reasonable
excuse for the delayed response; or
- Taxpayer
delays the progress of the audit with no reasonable excuse or obstructs the
progress of the audit.
IRAS operates on the belief that taxpayers are generally compliant. Whether the taxpayer is committed to improving their tax compliance going forward is a mitigating factor that when IRAS will take into consideration when deciding on the penalty for the tax offences.
Taxpayers can show their commitment to better tax compliance in the future by undertaking to improve their record keeping, using proper accounting software and/or engaging suitably qualified person to prepare their accounts, etc.
To encourage voluntary disclosures of
past errors and omissions, IRAS may reduce penalties for voluntary disclosures
which meet the qualifying conditions under IRAS' Voluntary
Disclosure Programme.
Learn more about how
to make a voluntary disclosure.
For Income Tax, penalty waiver is granted
for voluntary disclosures made within a 'grace period' of one year from the
statutory filing date. After the lapse of the 'grace period', IRAS will impose
a reduced penalty of 5% for every back year the disclosure was untimely, on an
incremental basis.
Taxpayer omitted to declare rental income received in 2018. He voluntarily disclosed the omission to IRAS on 1 Apr 2020. Assuming he has met all the qualifying conditions under the Voluntary Disclosure Program, the penalty treatment is as follows:
-
Since
taxpayer came forward during the grace period of 16 Apr 2019 to 15 Apr 2020,
IRAS will grant a one-time waiver of penalty.
- If
taxpayer makes the disclosure after 15 Apr 2020 but before 16 Apr 2021, the
penalty would be 5% of the tax undercharged.
Taxpayer omitted to declare rental income received in 2016. He voluntarily disclosed the omission to IRAS on 1 Apr 2020. Assuming he has met all the qualifying conditions under the Voluntary Disclosure Program, the penalty treatment is as follows:
16 Apr 17 to 15 Apr 18 |
16 Apr 18 to 15 Apr 19 |
16 Apr 19 to 15 Apr 20 |
Grace period 0% | 5% | 10% |
If the taxpayer had came forward during the grace period of 16 Apr 2017 to 15 Apr 2018, he would have been entitled to a one-time waiver of penalty. However, because the disclosure was untimely, IRAS will impose a penalty of 10% of the tax undercharged.
If the taxpayer makes the disclosure after 15 Apr 2020 but before 16 Apr 2021, the penalty would be 15% of the tax undercharged.