Friday, March 13, 2015

IRAS Takes Steps to Curb Tax Evasion

Regulators worldwide are cracking down on tax evasion, an issue which has come to prominence especially with the recent revelations that UK bank HSBC had assisted more than 100,000 wealthy individuals from paying tax.

With the advent of the increase in marginal tax rates for individuals who earn at least SGD 160,000 as announced in the recent Singapore Budget 2015 statement, high income earners may decide to set up companies in order to avoid higher personal income taxes, and in turn, pay the corporate income tax of 17% instead. The personal income tax for high income earners will be increased up to 22% percent on the chargeable income from the year of assessment 2017.

The Inland Revenue Authority of Singapore (‘IRAS’) has announced that it will closely monitor such corporatisation behaviour in order to prevent instances of tax evasion. Where companies are being set up mainly to avoid personal taxes, IRAS will place emphasis on the assessment of the income of the individuals involved, and will disregard the corporate structures of such companies. In addition, IRAS will also be stepping up its audit programmes to detect and deter tax avoidance and evasion.

Singapore is fully committed and has taken steps to implement the relevant international standards to tackle tax evasion. It has agreed to adopt the Automatic Exchange of Information (‘AEOI’) as put forth by the Organisation for Economic Co-operation and Development (‘OECD’), which will require participants to provide a non-resident’s financial information to the tax authorities in their home jurisdiction, by 2018. The implementation of the AEOI is a step in the right direction and signals Singapore’s intent to aid in the global clampdown on tax evasion.

Furthermore, the Monetary Authority of Singapore (‘MAS’) has designated serious tax crimes which includes tax evasion, as money laundering predicate offences, which acts as a deterrent against the possibility of illicit funds entering into Singapore’s financial system so as to protect its reputation as a trusted financial centre.

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