With the heightened tax risks (Heightening Tax Risks, Sitting Ducks Beware 23/7/2021) and recent court sentencing framework (Tax evaders beware! 15/7/2021), what are the perils of tax evasion ? As business entrepreneurs, it is inevitable that we would face challenging and contentious tax issues which could straddle the fine line of tax planning or evasion. To take a decision on how far that one would go for a tax contentious business arrangement or deciding on the time and efforts that one should expend on getting some basic tax compliance in order or be it to go ahead and pay for an accountant to do up tax return rather than do it on your best effort, it may save one some grief to exercise the same profit-making rigor in taking this as a risk assessment exercise, as in all business ventures.
Under Section 96 of the Singapore Income Tax Act, tax evader is subject to 300% of the tax undercharged, and/or $10,000 fine and/or 3 years imprisonment if convicted. Thus, the financial loss is a potential of 3x the amount of tax ‘saved’ and a $10,000 fine. Ignoring the need to perform a scientific projection of a probability that the evaded tax would be discovered by IRAS, and adopting the maxim of only taxes is as certain as death, the financial loss is a clear NO. Some of the recent tax evasion cases in 2021 are:
- A business partner of a Nightclub suffered financial loss $348,500 comprising of a tax penalty of $340,000 and fine of $8,500 for evading an estimated tax of $113,000 for not reporting sale of garlands.
- A shareholder and director of a marine safety company suffered a financial loss of potential $5,410,000 (penalty $5,400,000 + fine $10,000) for evading $1,800,000 of GST.
- A sole proprietor of two printing businesses suffered a financial loss of $323,733 for evading $107,911 of GST.
However, for the high risk taker that would bagger a low probability of this financial loss for a low expected loss despite of the high 3x negative payout, you may want to read further.
The financial loss is one aspect of the negative outcome, the other potential negatives are physical and morals. The physical discomfort and the loss of freedom from holing up in a prison cell for up to 3 years is certainty no mean feat. With the tougher stand on tax compliance by major tax jurisdiction and aggressive tax collection efforts to crawl back some grounds for budget deficits, have make the probability of this sentencing more likely than in the last decade. The physical perils respectively for the above cases in the same order are as follows:
- 3 weeks of jail sentence.
- Likely to be 3 months of jail sentence. Case is not convicted yet at the time of writing.
- 14 weeks of jail sentence.
On morals front, the reputation backlash on the back of pervasion social media and connected world, will drive damaging long-term repercussions on both personal and corporate image. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”. That, we agree with Warren Buffet.