IRAS Unveiled 3 Common Mistakes made by the Companies during Tax Filing
The corporate tax filing season for companies in Singapore has arrived again! The season of tax filing brings a lot of speculation and sense of fear among the business organizations as failing to comply may result in enforcement actions like penalties, composition or summons issued to the company or entity. As per IRAS, companies must file their annual return through hard copy within 30 November and e-filing can be done by 15 December of every year.
Despite putting constant efforts to make the companies aware of accurate tax filing method through the programs like DCP (Directors Compliance Program) of ACRA, the IRAS still continues to recover a sizeable amount in the name of taxes and penalties every year during the compliance review. Last year the amount was S$217 million. This is happening due to the negligence of some sections of business companies and entities.
How to file accurate annual tax return by avoiding the common mistakes
Recently, the IRAS (Inland Regulatory Authority of Singapore) has highlighted on the most three common mistakes that the companies often made.
1) Failure to keep proper records and accounts
IRAS suggests that it is important for every firm to maintain proper records and keep the source documents for the transactions connected with their business. The unavailability of adequate data may cause miscalculation of the accurate amount of tax return filing. If a company failed to keep and retain sufficient records, IRAS may estimate its income and expenses based on available information and assess its tax accordingly. As per the recommendations of IRAS, these records should be kept for five years, even after the company has received its Notice of Assessment for the year.
2) Wrongful claims of tax deduction for private expenses or inflated payments to related parties
The tax authority of Singapore has also noticed that many companies, especially the family-owned businesses, often claim the tax deduction on expenses or payment disallowed. These include-
- Personal expenses incurred by company directors;
- Private motor car expenses, which are specifically disallowed for tax deduction under the Income Tax Act; and
- Excessive payments to family members or related parties.
3) Wrongful claim of tax deduction under the PIC scheme
Singapore businesses can only claim expenditure on equipment listed in the PIC IT and Automation Equipment list. They can either convert their qualifying expenditure into cash payout or claim the 400% tax deductions/allowance against their income. Furthermore, the businesses can claim only one of the options between the cash payout and 400% tax deductions/allowances on the same dollar of expenditure.
Taxpayers, if found convicted under Section 95 of the Income Tax Act for filing an incorrect tax return, may charge with penalties of up to 200 % of the amount of tax undercharged. Additionally, the accused may imprison for up to three years or charged with a fine up to S$5,000.