24 Jul 2009

Hong Yuen Construction Pte Ltd (“Hong Yuen Construction”) was charged under Section 95(2)(a) of the Income Tax Act, for 6 counts of, without reasonable excuse, making incorrect returns by under-reporting income of $3,378,129, and consequently tax undercharged of $644,945.92, for the Years of Assessment 2001 to 2006.

Hong Yuen Construction’s director, Quek Ching Bun, was charged under Section 95(2)(b) of the Income Tax Act for 6 counts of giving incorrect information in the company’s statements of accounts, affecting the tax liability of Hong Yuen Construction for the Years of Assessment 2001 to 2006.

This is the first case that a company and its director were charged and convicted under the Income Tax Act for claiming fictitious expenses relating to “phantom workers”.

Modus Operandi

Investigations revealed that Hong Yuen Construction had, during the years 2000 to 2005, reflected salaries and the corresponding CPF contributions for “phantom workers” in its statement of accounts as expenses. Hong Yuen Construction was not entitled to claim these expenses as deductions as these workers did not work for the company. It had therefore understated its income and consequently the income tax payable.

Hong Yuen Construction’s director, Quek Ching Bun, admitted to including “phantom workers” in the company’s payroll to falsely inflate their foreign worker entitlement so as to employ more foreign workers to work on its construction projects.

Court sentences

This morning, Hong Yuen Construction and Quek Ching Bun pleaded guilty to 2 of the 6 charges. The remaining 4 charges were taken into consideration for the purpose of sentencing. For the 2 charges, the Court

  1. Sentenced Hong Yuen Construction to a fine of $4,000 and ordered it to pay a penalty of $266,486.34. The penalty is equivalent to 2 times the tax undercharged of $133,243.17.
  2. Sentenced Quek Ching Bun to a fine of $4,000 and ordered him to pay a penalty of $266,486.34. The penalty is equivalent to 2 times of Hong Yuen Construction’s tax undercharged of $133,243.17.

Voluntary Disclosure

Taxpayers are encouraged to conduct periodic reviews of their income tax returns/declarations and disclose any error voluntarily. While IRAS believes the majority of taxpayers are compliant, some taxpayers could have been negligent or unaware of their tax obligations, thus resulting in mistakes.

To encourage taxpayers to disclose errors or omissions and to come forward voluntarily in a timely manner, IRAS has reduced the penalty under its Voluntary Disclosure Programme for voluntary disclosures which meet qualifying conditions. The qualifying conditions and further details are listed in IRAS’ e-Tax Guide on “IRAS Voluntary Disclosure Programme”, which is available at www.iras.gov.sg.

Members of the public may report malpractices

While IRAS believes the vast majority of taxpayers are law-abiding and contribute their fair share of taxes, strong deterrent action will be taken against those who wilfully understate their income, even if the amount evaded is small. Those who assist others to defraud the government by falsifying records that result in under-declaration of income will also be penalised.

Taxpayers who wish to disclose errors made by them in their past income tax returns or anyone who wishes to report malpractices that might indicate tax evasion may write to IRAS at the following addresses:

Email: [email protected]
Address: Investigation & Forensics Division,
55 Newton Road,
Singapore 307987

IRAS would ensure that the identities of informants are kept confidential.

Issued by the Inland Revenue Authority of Singapore