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 yesterday to help companies avoid such pitfalls as they prepare to file their income tax returns for the year.
Companies filing their 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.
These records should be kept for five years for future checks.
A second common mistake is that companies, especially family- owned ones, often claim tax deduction on expenses or payments that are disallowed, Iras said.
These include personal expenses incurred by company directors, private motor car expenses and excessive payments to family members or related parties.
"Tax deduction can be claimed only for salaries that are pegged at market rates and not excessive compared to those paid to an unrelated employee with similar qualifications and skillset performing the same job," Iras said.
Another common mistake companies make is related to the Productivity and Innovation Credit (PIC) scheme, which offers companies a cash payout or a 400 per cent tax deduction or allowance when they invest in equipment or activities that will raise productivity.
Some businesses have tried to claim the tax deduction or allowance on non-PIC qualifying equipment, or on PIC qualifying expenditure that had been converted to a cash payout, Iras said.
Ms Chiam Yah Fang, Iras assistant commissioner in the corporate tax division, said: "While we believe that most companies are voluntarily compliant, we would not hesitate to take enforcement actions on those companies that are not."
Taxpayers convicted under 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, fined up to $5,000 or imprisoned for up to three years.
However, Iras' Voluntary Disclosure Programme offers reduced or no penalty to companies that disclose incorrect returns they had submitted previously without intending to evade tax.