IRAS' Compliance Focus

IRAS believes that taxpayers are generally compliant and that most non-compliance arises from negligence or insufficient understanding in tax matters.

IRAS calibrates our compliance approaches according to the compliance behaviour of taxpayers:

  1. For those who are voluntarily compliant, we provide support and assist them in fulfilling their tax obligations.
  2. For taxpayers who may be negligent in the filing of their tax returns, audits are carried out to detect and correct the errors.
  3. For the small group of errant taxpayers who deliberately evade taxes, we will carry out detailed investigations and take strong actions against them.

IRAS adopts a risk-based approach in carrying out our compliance programme. We identify and prioritise key areas of compliance risks; and develop targeted and customised programmes to tackle the different types of risk.

 

Ongoing Areas of Focus for Individual Taxpayers

IRAS' compliance efforts are focused on self-employed individuals as we have observed that independent business operators have a higher tendency to make mistakes and file their tax returns incorrectly.

 IRAS continues to focus compliance efforts on the following areas:

  • Timely filing of income tax returns
  • Under reporting of revenue and wrongful claims of purchases/expenses by cash-based industries
  • Productivity and Innovation Credit (PIC) claims
  • Reconciliation of income declaration with assets purchased

 

Timely filing of income tax returns

Currently, about 97% of individual taxpayers file their tax returns on time.

Given that the statutory record-keeping period has been reduced from seven to five years, and that filing of tax returns is an annual obligation, it is important that individuals file their tax returns promptly to ensure timely finalisation of their tax matters.

If you are on the No Filing Service (NFS), you are not required to file a tax return. However, if you have additional income to declare, or changes to make to your personal reliefs, please e-file via mytax.iras.gov.sg.

Do note that late/non-filing of tax returns may attract penalties. 

Under Reporting of Revenue and Wrongful Claims of Purchases and Expenses by Cash-Based Industries

Generally, we focus our compliance efforts on businesses and professionals who have higher levels of cash or paper transactions and poor record-keeping practices as they pose a higher tax non-compliance risk. Businesses and professionals with exceedingly high claims of expenses will also be scrutinised.

To aid these businesses and professionals to better comply with their tax obligations, we have put in place a series of compliance programmes ranging from educational and engagement activities to the conduct of audits to review the completeness and accuracy of tax reporting.

Past Compliance Focus on Self-Employed Groups

In previous years, educational and audit efforts had been placed on self-employed groups such as commission agents, F&B operators, medical practitioners, renovation contractors, public accounting firms, maid agencies, beauty & wellness operators, arts & collectibles operators etc.

In recent years, IRAS focused much of its efforts on the tuition industry, comprising tuition centres, tuition agencies and freelance tutors.

To address common tax issues and enhance the compliance level of this industry, we invited close to 4,000 tuition operators to our tax seminars. About 600 operators signed up for our seminars.

A customised starter guide for the tuition industry was also provided to heighten their understanding of the correct ways of reporting their income and the proper records to keep.

IRAS also conducted audit activities on more than 150 tuition operators and has since recovered more than $2.5 million in additional taxes and penalties. Non-compliance was found to be more prevalent in the areas of omission or under-declaration of tuition fees from students. Other areas of non-compliance uncovered included cases of tutors who worked from home or on a part-time basis and omitted or under-declared the tuition income received from tuition centres, agencies and private tutoring.

Upcoming Compliance Focus

For the coming years, IRAS will continue its compliance efforts on self-employed groups such as real estate agencies and used car dealers. We will also look at business operators from the plumbing, air-conditioning and electrical industry as operators from these industries typically have a higher level of business transactions and hence higher tendencies to make mistakes.

Productivity and Innovation Credit (PIC) Claims

Self-employed individuals and businesses that meet the qualifying conditions can claim tax benefits under the PIC scheme in the Years of Assessment (YAs) 2011 to 2018.

 Based on past reviews, IRAS had come across business arrangements aimed at artificially creating or inflating PIC claims. While such cases make up a minority of PIC claims, anti-abuse measures such as denying the PIC benefits and imposition of penalties on intermediaries (including vendors and consultants) who know, or have reasonable grounds to believe that the arrangements they are promoting are abusive, have been introduced.

 IRAS will continue to review selected PIC cash payout claims made by individuals and businesses to ascertain the claims are in order. We will also audit individuals and businesses to determine if they have made errors in their claims for PIC benefits in their Income Tax Returns.

Reconciliation of income declaration with assets purchased

IRAS has been issuing query letters to individuals who have purchased high value assets, to check on their source(s) of funds for the acquisition.

The objective of the letter is to create awareness among such individuals to be more mindful of their personal income tax matters and also as a way to identify individuals who may not seem to have the income level to support these purchases.

IRAS may also inform such individual taxpayers to review their income declaration to ensure that they have duly declared all income.

Receiving Query or Review Letters

Receiving query or review letters from IRAS does not mean you have made a mistake. It means that you have either acquired high value asset(s) - property and/or vehicles, in recent years, or allowed your name to be used by others for the acquisition of the asset(s).

Obligation of Taxpayers

Upon receiving a query letter, you should reply to the query truthfully and let us know if you have omitted or under-declared any income. 

You should also make use of this opportunity to do a thorough review of past declarations to ensure that all reporting are complete. Any voluntary and timely disclosure of omissions or errors in tax filing will result in a lower penalty.

Common Issues and Mistakes

Apart from engaging taxpayers who have made mistakes in their tax returns, IRAS keeps taxpayers informed of their tax obligations to aid their compliance with tax laws.

Here are some of the common issues and mistakes taxpayers are likely to make:

 

No.Common ErrorsGetting It Right
1Failure to keep proper records on the actual revenue and report revenue based on estimates.

Taxpayers must maintain a full and complete record of income received.

Income can be recorded in two ways:

  • Key all takings into a cash register and transfer the total takings to a sales book daily; or
  • Issue serially pre-printed numbered invoices/receipts in duplicates in respect of goods sold and account for all invoices/receipts issued when preparing the accounts for their businesses
2Failure to report the full amount of revenue. Purchases and expenses were paid directly from the cash revenue, and the net amount was reported as revenue.Takings that are used to pay for your purchases or expenses must be properly recorded and included in your reported revenue.
3Failure to separate deposits made into personal and business bank accounts resulting in a lower amount of business income being reported.Taxpayers should maintain separate bank accounts for business and personal purposes. The business income should be deposited into the business bank account only to facilitate an accurate reporting of business income.

 

 

No.Common ErrorsGetting It Right
1Claims of private expenses like club membership subscriptions, entertainment, personal insurance, travelling expenses for personal trips etc. against the business incomePrivate expenses are not deductible for Income Tax purposes.  
2Claims of motor vehicle expenses including petrol, insurance, repair and maintenance, parking and CBD charges etc. in respect of E or S-plate cars.These expenses are specifically prohibited under the Income Tax Act and are not deductible even if they were incurred in the course of business.  

 

 

No.Common ErrorsGetting It Right 
1Excessive salary and bonus paid to related parties, e.g. spouse, parents, children, siblings, for services rendered to the business.Salary, bonus and other payments made should commensurate with the services rendered and should be in line with market rate.     
2Payments of salaries, allowances or CPF to related parties, e.g. spouse, parents, children, siblings, when they are not employees of the business. 

 

 

No.Common ErrorsGetting It Right 
1Failure to keep proper business records and make declaration based on estimates.

All claims for expenses should be based on actual amounts incurred and supported with invoices, receipts, payment vouchers or schedules.

 

Taxpayers are required to keep sufficient records for five years from the Year of Assessment (YA) from which the income relates, to enable their income and allowable deductions to be readily ascertained.

For example, business records for accounting period 1 Jan 2017 to 31 December 2017 (YA 2018) must be kept till 31 December 2022.  We may request for these documents in the course of audits and disallow the expenses claimed or impose penalty if taxpayers fail to produce proper records.

 
 
2Disposal of business records once they have received their Notice of Assessment. 

 

 

No.Common ErrorsGetting It Right
1Failure to report other sources of income like director's fees and rental income, which are taxable.All these sources of income are taxable and must be reported in your income tax return.

 

Playing Your Part in Ensuring Everyone Pays a Fair Share of Taxes

  • Keep Proper Business Records

Good record keeping is an important part of a business and is the first step towards achieving a complete and accurate income reporting.

To help taxpayers in improving their record keeping practices, IRAS has created a self-assessment toolkit to help businesses perform a self-review of their existing record keeping standards and to better understand the possible areas for improvement.

For non-GST registered businesses, please download the toolkit.

For GST-registered businesses, please download the toolkit.

  • Conduct Regular Self-Reviews

Taxpayers are encouraged to conduct regular self-reviews to ensure that their past declarations were in order. 

IRAS has developed a self-review checklist to guide taxpayers in identifying potential areas with reporting errors so that they can carry out an effective self-review and voluntarily disclose any errors/omission identified.

  • Voluntarily Disclose Past Mistakes

IRAS believes that the majority of taxpayers are voluntarily compliant. We understand that some taxpayers could have committed tax errors due to their negligence or lack of understanding of their tax obligations.

We encourage taxpayers who have made errors or submitted incorrect returns to come forward voluntarily in a timely manner, to disclose these errors or omissions and get their tax obligations right. 

 By doing so, they may qualify under our Voluntary Disclosure Programme in which the penalty for such errors or omissions will be greatly reduced. For details, please refer to the IRAS Voluntary Disclosure Programme .

  • Report Tax Evasion

We encourage members of the community to report suspected  tax evasions. If you suspect a person or business is engaging in some transactions in order to evade their tax obligations, or you know of someone who is not complying with their tax obligations, you can let us know by writing or emailing to ifd@iras.gov.sg. Your information will be kept confidential.

  • Ask for Records

 As a consumer, you can request for a written contract, tax invoice or obtain a receipt on payment. This helps to ensure that businesses retain and keep some forms of records.

As an employee, if your salary is paid in cash, you should ensure that you receive a payslip or a Form IR8A.

You can help ensure that every taxpayer pays his or her fair share of taxes through these various roles that you play. 

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