THE Inland Revenue Authority of Singapore (Iras) said on Thursday it had recovered S$217 million in taxes and penalties from its compliance reviews on companies last year, prompting it to highlight three common mistakes firms should avoid when filing their income.
Companies have up to Nov 30 to file their taxes on paper, but those which file online have up to Dec 15, 2015.
The three common mistakes found were the failure to keep proper records and accounts; wrongful claim of tax deduction on private expenses, or inflated payments to related parties; and wrongful claim of tax deduction under the Productivity and Innovation Credit (PIC) Scheme.
Iras said companies must maintain proper records and keep the source documents for transactions connected with their business. If not, it might have to estimate the firm's income and expenses based on available information and assess its tax accordingly. It recommended that records should be kept for five years for future checks, even after the company has received its Notice of Assessment for the year.
The tax collector also said tax deductions are disallowed for the following:
(i) Personal expenses incurred by company directors;
(ii) Private motor car expenses, which are specifically disallowed for tax
deduction under the Income Tax Act; and
(iii) 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, it said.
Businesses can claim deduction for expenditure only on equipment listed in the PIC IT and Automation Equipment List. Companies have to seek IRAS's approval for equipment not on the list, and demonstrate how the equipment would be used to enhance their productivity.
Under the PIC scheme, companies must choose between a 400 per cent tax deduction/allowance and a cash payout. They cannot claim enhanced tax deduction/allowance if they have already opted for and received cash payout for the expenditure.
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 up to S$5,000 or imprisonment for up to three years may also be imposed.