Durian & Tax
A famous durian seller Ah Seng in Ghim Moh has been hauled by the IRAS to court today for tax evasion of $74,000 over 6 years from 2007 to 2011 as well as failure to register for GST when its revenue exceeded $1m in 2006.
IRAS is known for doing site inspection for tax payers whom are running brisk businesses but declared exceptionally low revenue to evade taxes vs the industry or market understanding. It is not difficult to have a gauge of the estimation of the size of street hawker or sellers business if there are perpetual long queue of customers patronising the stalls.
IRAS also has the powers to request the tax payer to furnish all supporting documents including all personal bank accounts and assets held by any tax payers to estimate the income over the years for the accumulation of such wealth.
Although the tax statutory limit for income tax investigation is 6 years for YA2007 or prior and 4 years for YA2008 onward, the statutory limit is not applicable under s74(1) of ITA in the event of fraud. Similarly, the statutory limit for GST investigation of 7 years for prescribed accounting period prior to 1 Jan 2007 and 5 years for prescribed accounting period ending 1 Jan 2007 and later is not applicable under s45(5) of GST Act when there is a fraud.
The length of IRAS investigation varies from 15 to 24 months and depends on the scope of investigation, complexity of the issues and the level of tax payer cooperation. IRAS investigation may involves the follow activities by the IRAS officers:
- A surprise visit (simultaneously or otherwise) to your business premises, private residence, tax agent, representative and/or other third parties locations to obtain all accounting records and supporting documents, both electronic and paper.
- Conduct searches in the above locations during the surprise visit
- Interviews with the tax payer, family members, office staff, tax agent or representative, suppliers, customers and any relevant third parties; and
- Obtaining information from or verifying information with other third parties such as other government agencies, banks and financial institutions, foreign tax authorities etc.
Following the conclusion of the investigation, the tax payer can expect 4 possible outcomes in the order of severity of tax evasion:
- Prosecution via Court proceedings initiated by IRAS.
- Composition of fine with up to 400% of tax evaded in lieu of prosecution and conviction in Court.
- Stern Warning or Conditional Warning for tax payer’s undertaking not to commit any other offences for a period of time.
- No further action if the evidence of wrongdoing is due to irregularities arising from technical interpretations or tax treatments.
It is important to note that any IRAS prosecution for serious tax evasion done wilfully with intent to evade or to assist any other person to evade tax carry a very heavy punishment.
On top of a hefty penalty of up to 400% of the amount tax evaded, a maximum fine of $50,000 may also be imposed as well as an imprisonment term of maximum 5 years. For GST tax evasion, the maximum imprisonment term is longer for 7 years.
Therefore, as discussed in the earlier article “In this world nothing can be said to be certain, except death and taxes” on 18 March 2019, certainly, it is best to pay for you due taxes for nation building or otherwise.