Iras raises penalties for late filing of tax returns

EMPLOYERS under the Auto-Inclusion Scheme (AIS) who file their taxes late will now face an increased maximum fine of S$5,000, up from S$1,000 previously, the Inland Revenue Authority of Singapore (Iras) announced on Friday (Feb 10).

Likewise, individual taxpayers who do not file their tax returns on time will be liable to a fine of up to S$5,000.

Key personnel of non-compliant businesses, such as company directors or partners, may be subject to a fine of up to S$10,000 or imprisonment for a term of up to 12 months.

Over two million, or eight in 10 taxpayers, will have their tax returns pre-filled under the AIS this year, according to Iras. 

More than 100,000 qualifying employers are expected to electronically submit the employment income information of their employees by Mar 1.

All taxpayers, including sole-proprietors and partners, will be required to file their income tax returns before Apr 18 to avoid the higher penalties for late filing.

They are encouraged to file online from Mar 1 and avoid last-minute filing, said Iras, who will be sending taxpayers filing notifications in late February or early March.

Some 1.7 million taxpayers will also be eligible for the No-Filing Service (NFS) this season. Taxpayers on the NFS are not required to file an income tax return, but must verify the accuracy of their pre-filled income information.

Out of 1.7 million taxpayers on the NFS, about 150,000 will be billed under the Direct Notice of Assessment initiative this year. This means their tax bill will be computed based on the income information provided by their employer and their previous year’s relief claims. They will start receiving their tax bills from mid-March.

Iras estimates that nine in 10 qualifying employers on AIS, and 19 in 20 taxpayers, met their respective filing deadlines in 2022. 

Panneer Selvam, Asean integrated mobile talent leader of EY People Advisory Services, believes administrative snags faced by companies during the tax-filing process could be a possible reason for missing the deadline.

As off-payroll remuneration items – such as stock incentives, taxable benefits in-kind, and employees on split payrolls – may require additional review and reconciliation, Selvam said this could result in the need for employers to manually update the IR8A forms in order to capture the taxable benefits.

“Where this information has to be obtained from overseas groups, there is the further complexity of obtaining the correct information under Singapore tax law – for example, the taxable benefit from exercise of stock options in one location may be calculated in a different way under Singapore tax law,” he explained.

Likewise, Deloitte Singapore’s global employer services leader Sabrina Sia said such off-payroll items are “often challenging to collate”. This is especially so if companies lack the systems, processes, or personnel with the appropriate expertise to track such benefits for employer reporting.

“There may be companies which are not cognisant of their obligations to undertake employer reporting or what is the deadline, or may not have personnel with the relevant expertise in Singapore to handle the relevant reporting. However, this can and should be addressed via outsourcing of services as needed,” said Sia.

Smaller companies with fewer than five employees may also not have the infrastructure or expertise to prepare and submit the tax returns in a timely manner, according to EY’s Selvam. “Though the number of filings would be fewer (due to a small employee base), the process may be more administratively burdensome.”

On the other hand, PriceWaterHouseCoopers (PwC) Singapore’s tax leader Chris Woo observed an increasingly challenging tax environment amid rising demand for accountability and better governance of financial details by regulators, boards of directors and shareholders. Finance teams involved in company tax filings are “often met with many competing priorities”, he noted.

Woo further highlighted that differing financial year-ends among companies could also lead to delays in obtaining financial data by a fixed deadline, as some companies may only submit the necessary financial information closer to the filing deadline than others.

“In this day when resources are thin, which can be the situation for both the company and the tax agent, it can also result in an outcome where filings are late due to the crunch.”

The increased maximum quantum of S$5,000 from S$1,000 previously is now “quite punitive” and should spur companies – especially repeat offenders – to ensure compliance with tax deadlines, said Deloitte’s Sia.

“Ultimately, it is also their brand and reputation with Iras that the companies should think about, as repeated failures to comply with the employer-reporting requirements may trigger Iras to conduct audits or reviews on them, which may lead to even heftier penalties,” she said.

Selvam of EY added that companies risk both their existing and future incentives or programmes that list “excellent taxpayer records” as a condition.

“Late filing could also put the company at a disadvantage when applying for work passes, which could lead to delays in projects,” he noted.

Beyond imposing heftier penalties for late filers, PwC’s Woo suggested offering an incentive for companies to upgrade their financial systems and automate the provision of data for tax filings.

This could come in the form of a co-payment scheme, where both taxpayers and the government could co-fund the improvement of a company’s financial systems for tax purposes.

“A reduction in time to collate and collect better-quality tax data would lead to improvements in productivity and the work-life experience for people working for three groups: the corporate taxpayers, the tax authorities and the tax agents,” he said.