Recent global development has seen the various government tax administration pivoting out to new and increased taxes to offset the tax revenue reduction in COVID-19 hit economies as well as in an attempt to plug the trillions budget deficit spent on support packages for the pandemic. With the pandemic raging the global economies for more than a year, deficits have rocketed in some countries, and reserves have been depleted in others. This will get worse with the increased expenditures required by countries for vaccination administration of its population and the uncertainty from the surges in COVID infection. The fallout from the fiscal risks is real and imminent. The push by G20 for the minimum global tax rate is certain and the question is only on the timeline for the implementation. So with the various tax administration starting to focus on new tax legislation with increased focus on tax enforcement, it is expected that tax compliance will be challenging.
The stakes around managing tax compliance for tax costs and risks are considerable higher. In Singapore, we have seen the tougher stand by the Singapore courts for tax evasion with the new sentencing framework as discussed in our earlier article, tax evaders beware ! 15 July 2021. SME owner should take steps to protect financial outcomes and reputation.
Some of the possible fallouts for sitting duck:
- Open to negative financial outcome arising from crawl back of taxes of disrupted tax treatment, tax fines and penalty.
- Damaging impact on corporate branding and management reputation from tax evasion.
- Disruptions to operations due to unnecessary and avoidable tie up of resources, cash flow and the attention of management/directors.
- Social media nightmare from the negative vibes of poor values (eg dishonesty, fraudster, tax criminal) generated which in worse scenario may lead to a significant loss of customers.
- Criminal charges against the company and its officers/directors.
What you could do is to think about how to prevent and mitigate the possibility of any tax disputes even happening:
- Put in proactive measures – get the right people to review and advise, put in business controls to pre-empt any exposure to contentious tax transactions and enforce accounting/tax internal controls to strengthen tax compliance.
- Put in place a tax management strategy to assess your tax risk and perform on-going review of your business tax exposure.
- Lead and adopt a leadership mindset. Approach all tax disputes with clear aim for a fast, effective and litigation-free resolution.
The key focus is to avoid any possible tax disputes in the first place and when it is not possible, consider to accept a common tax outcome to secure a fast resolution. This is to allows you or the company to move forward asap and to minimise any negative fallouts.