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Tax audits and tax investigations by Inland Revenue Authority of Singapore (IRAS) play a crucial role in maintaining the integrity of the Singapore tax system. IRAS conduct random checks and reviews and select businesses for audits to ensure their compliance with tax laws and regulations.
It can be very stressful for individuals and businesses who are under-going an audit or investigation as the process is lengthy and tedious, potentially spanning six months to two years, or more, depending on the complexity and severity of the case involved. For tax investigations, business operations will be disrupted or even halted as staff resources are channelled to the gathering and extraction of financial information and records from past years for IRAS. If the case eventually landed up in court, the resulting press publicity can be damaging for businesses. The anxieties are further compounded by uncertainty and frustrations as targets may not know the ultimate motive of IRAS in initiating the investigation on them.
The outcome of an audit or investigation invariably results in additional tax payments for the uncovering of undisclosed or under-statement of income, or the over-claiming of expenses. The resultant tax adjustments made would also lead to hefty penalties.
What is tax audit?
A tax audit is a process which assists IRAS in examining financial records and tax returns of selected taxpayers or businesses. The primary objective is to ensure that the reported income, expenses and credits claimed and declared in the tax returns are accurate, thereby maintaining tax integrity.
The scope and extent of an audit examination vary for different selected businesses. It may be straight forward requests, usually made via emails or letters, for additional information and documents to substantiate the income and expenses reported. The more involved cases may require a pre-arranged meeting. IRAS auditors would then be present at business premises to conduct their thorough examination of transactions, accounting records and documents.
Tax audit cases may involve either individuals or businesses. They are mostly randomly selected based on a particular industry that IRAS is focusing on at that point in time. A tax audit could be triggered if there are signs of substantive year-to-year variances in income and expenses in financial statements, the claiming of large sums of deductions over the years, transactions involving persistent losses, certain situations or actions (e.g. suspected tax evasion) that arouse suspicions from IRAS, tip-offs and the risk profile of the individuals or businesses concerned. There could also be cases that originated or referred by other divisions within IRAS based on information that they received.
 
Businesses can reduce their audit risk by adopting an honest approach in reporting their income and expenses, keeping accurate records and staying current with tax law changes.
What is tax investigation?
Over the years, IRAS have increased their efforts to combat tax evasion fraud. The primary objective of conducting an investigation is to determine whether tax violations have been committed, with the result of an incorrect amount of tax being reported and paid. The aim is for IRAS to recover the undercharged taxes from prior years.
A tax investigation involves an in-depth and thorough examination of financial transactions and records with the aim to identify tax evasion by taxpayers or the potential for non-compliance with the law requirements. The presence of specific intelligence, tip-offs or whistleblowing, suspicious business practices, cash flow manipulations, false invoicing, inflated expenditures and non-compliant filing status are the tell-tale signs that would prompt an investigation.
Unlike a desk or field audit where prior notice is given to the taxpayer, tax investigation usually involves an unannounced surprise visit, or a dawn raid, to the taxpayer’s office or residence. Surprise visits may also take place simultaneously across multiple corporate offices and residences of individuals involved.
During such surprise raids, the Investigators and Forensic Officers are tasked to gather all relevant information and documents and confiscate them. These may include digital copies of documents, electronic devices and mobile phones. At times, the inventories at company warehouses are also taken away.
Immediately after the raids, IRAS Investigators will conduct interviews and record statements from all parties involved including directors, their family members, office staff, accountant(s), tax agent(s), suppliers and relevant third parties. Each of the statement recording process may last between two to five hours, or even longer. These oral statements may or may not be used subsequently as evidence in court. Any of the individuals involved may be called multiple times for further questioning.
It is a very disruptive period for businesses and this may well last between 15 to 24 months, or longer, depending on the severity of the case.
Current trend
IRAS have significantly intensified activities on tax audits and investigations over the last few years, focusing on different industries including both direct and indirect taxes. For financial year 2023/24 alone, IRAS audited and investigated 9,590 taxpayers and recovered approximately S$857 million in taxes and penalties1.
With the advancement of artificial intelligence applications in audit and fraud detection, the investigation capabilities of IRAS are enhanced. Efforts are stepping up, with increased proactiveness in targeting individuals and businesses suspected of underpaying taxes. In addition, the compliance strategy of the following four areas have also been strengthened:
✅ Upgrading of the Forensics Unit capabilities by embracing advanced technologies and investigation equipment.
✅ Enlarging the Intelligence Unit and employing more headcount to make their presence felt in the field.
✅ Reviewing current tax legislations and their limitations and exploring the need to make any legislative amendments.
✅ Collaborating with other Government agencies such as Commercial Affairs Department and Immigration and Checkpoints Authority for the necessary operations and prosecution of offenders.
1 Source: https://www.iras.gov.sg/news-events/newsroom/iras-annual-report-fy2023-24
Dos and Don’ts during a tax investigation
Dos | Give Investigators your full cooperation and do not obstruct them from performing their duties (e.g. deleting records from your computers or mobile phones). |
| Provide truthful and correct information. If you are unable to recall the requested information, seek some time to recall and provide them. | |
| Engage an experienced tax consultant to guide you through the investigation process professionally, to increase your chances of securing a favourable outcome and resolving the issues out-of-court. | |
| Seek clarification or request amendments to the statement(s) you have made, before signing, if the facts stated are inaccurate or not in accordance with what you said to the interviewer. | |
| Request for an interpreter if the language used during the interview is not understood to you and/or by the interviewer. | |
| Sign on each page of the statement and date it and ensure no blank space is left on any page. | |
Don'ts | Hinder or obstruct IRAS Investigators in carrying out their duties. It is an offence to do so. The guilty taxpayer is liable, on conviction, to a fine not exceeding S$10,000 and/or imprisonment for a term not exceeding twelve months. |
| Hesitate to ask IRAS Investigators to identify themselves with their authority cards. | |
| Hesitate to seek clarifications if you are in doubt in the questions posed to you. | |
| Continue with the statement recording if you are unwell or have taken medication before the interview which is likely to impair your thought process and thinking ability. | |
| Hold your request to ask for a short break for drink or a meal break. | |
| Ask for a copy of the statement you have made as IRAS Investigator will not provide. You are however allowed to take notes during the interview. | |
Outcome of a tax investigation
Taxpayers who are found to have wrongfully reported their income or expenses can either be charged in court or IRAS have agreed to a settlement out-of-court. Either way, the punishment for the guilty would be harsh and include payment of steep penalties.
There are four possible outcomes arising out of a tax investigation.
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| Once a prima facie case is established that an offence has been committed, IRAS may consider initiating court proceedings against the guilty and their abettors. |
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| An offender may be given an offer to pay a composition sum of up to 400% of the additional tax payable, depending on the severity of the tax offence, in lieu of prosecution and conviction in court for the offence committed. Upon acceptance of the composition and making full payment of the composition sum, no further prosecution action will be instituted for the same offence during the same period. |
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| In some cases, stern warnings or conditional warnings may be issued in lieu of court prosecutions. When a conditional warning is administered, the prosecution is withheld for a period of time during which the offender must undertake not to commit any other offences. Upon the expiry of the defined period and fulfilment of the condition, no further actions will be taken in respect of the offence committed. |
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| In cases where there is no evidence of any wrongdoing, for example, where the irregularities arose out of technical interpretations, IRAS may close the case without any further action after the appropriate tax adjustments had been made, and the additional tax settled. |
Offences and penalties
The offences and penalties under Singapore Income Tax Act 1947(ITA) and Goods and Services Tax Act 1993 (GSTA) are outlined in the table below.
| Extent of direct or indirect tax offence committed | Section of ITA | Section of GSTA2 |
| Without reasonable excuse or through negligence | Section 95(2)
| Section 59(2)
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| With intention to evade taxes | Section 96(1)
| Section 62(1)
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| Serious fraudulent tax evasion | Section 96A(1)
| Section 62C(1)
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2 There are other offences and penalties such as those stated under Section 59(1), Section 63, Section 64, etc. and which are not elaborated here.
Contact us
Taking the right steps today can help you and your business avoid costly mistakes and ensure a strong compliance foundation for the future. With a proper tax governance framework put in place, tackling a tax audit or investigation would be a much smoother process, reducing the psychological and emotional stress that often comes with it.
Whatever your situation, be it a routine tax enquiry or dispute, an audit or investigation, our dedicated team of specialists has the extensive experience to manage, navigate and walk you through the entire process with confidence to achieve the best possible outcome.
