SINGAPORE - Companies that make mistakes when filing their tax returns often do so because they fail to keep proper records and accounts, make wrongful claims or report inflated payments.
The Inland Revenue Authority of Singapore (IRAS) highlighted these common mistakes in a statement on Thursday (Oct 29) to help companies avoid them as they prepare to file their income tax returns.
Companies filing returns online have until Dec 15, while those submitting hard copy returns have until Nov 30.
IRAS stressed that it is important for firms to keep proper records and accounts. Companies with inadequate or improper record-keeping and accounting practices tend to understate sales, or overstate expenses in their tax returns, it said.
Companies must maintain proper records and keep the source documents for transactions connected with their business. If a company does not keep sufficient records, IRAS may estimate its income and expenses based on available information and assess its tax accordingly.
These records should be kept for five years for future checks, even after the company has received its Notice of Assessment for the year.
Companies, in particular family-owned businesses, often claim tax deduction on expenses or payments that are disallowed, IRAS noted.
These include personal expenses incurred by company directors, private motor car expenses, and excessive payments to family members or related parties.
Another common mistake companies make is related to the Productivity and Innovation Credit (PIC) scheme.
The scheme offers companies a cash payout or a 400 per cent tax deduction or allowance on equipment or investments made to boost productivity and innovation, such as technology or staff training.
A number of businesses tried to claim 400 per cent tax deduction or allowance on non-PIC qualifying equipment, or on PIC qualifying expenditure that has been converted to cash payout, IRAS said.
Taxpayers convicted under Section 95 of the Income Tax Act for filing incorrect tax returns may face a penalty of up to 200 per cent of the amount of tax undercharged. A fine of up to S$5,000 or imprisonment for up to three years may also be imposed.