Imposition of Penalties
In cases where the error/omission/discrepancy in the tax return was made without any intention to evade taxes , the taxpayer may, under the Income Tax Act :
a. face a penalty up to 200% of the amount of tax undercharged;
b. be fined up to $5,000; and/or
c. be imprisoned up to three years.
In cases where the error/omission/discrepancy in the tax return was made with intention to evade taxes , the taxpayer may, under the Income Tax Act:
a. face a penalty up to 400% of the amount of tax undercharged;
b. be fined up to $50,000; and/or
c. be imprisoned up to five years.
You may make a Voluntary Disclosure of errors/omissions/discrepancies to reduce the penalties imposed under the IRAS' Voluntary Disclosure Programme .
Consideration of "Individual Circumstances"
To treat each taxpayer fairly, IRAS will consider individual circumstances when deciding the penalty only in cases where there is no evidence of any intention to evade taxes.
Individual Circumstances #1: Negligence / "Without Reasonable Excuse"
IRAS treats taxpayers who have committed errors with negligence and/or without reasonable excuse less favourably. The list indicates some of the possible negligent behaviours or behaviours without reasonable excuse:
- 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.
Individual Circumstances #2: Compliance History
IRAS treats taxpayers who have been compliant with their tax responsibilities more favourably than taxpayers who have displayed non-compliant behaviour in the past.
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.
Individual Circumstances #3: Cooperation During Audits
Being uncooperative during the audit is an aggravating factor when IRAS decides on the penalty for the tax offences. A taxpayer is considered to be uncooperative during an 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.
Individual Circumstances #4: Commitment to Future Compliance
IRAS operates on the belief that taxpayers will be compliant with the right guidance.
Taxpayers who commit to improving their tax compliance going forward is a mitigating factor when IRAS decides 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.
Notification of Penalties Imposed
Taxpayers are notified in writing of the penalty amount and the due date for the payment of the penalty. An explanation as to why the penalty was imposed will also be provided.
Reporting Mistake to Qualify for Zero or Lower Penalty
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
.