Tax exemption abuse - director sent to jail

In tax Year of Assessment 2005, the government introduced a tax relief scheme to encourage entrepreneurship. Newly incorporated companies would have tax exemption on the first $100,000 of their income for 3 years.


After learning about this scheme, Gan Oh Boon, director of Steel Formation and Rolling Specialists Ltd (SFRS), proceeded to incorporate 6 companies which then entered into service agreements with SFRS. SFRS supposedly paid these 6 companies for non-existent services. However, the 6 companies had no staff. There was therefore fictitious transactions such as payments for commission fees, technical consultancy fees, marketing consultancy fees, engineering consultancy fees and management fees. In doing so, Gan saved $1.62 million when filing his personal tax returns.

As a result of the tax evasion, Gan was jailed for 2 weeks, fined $8,000 and ordered to pay a penalty of nearly $1 million. His company was fined $24,000 and ordered to pay a penalty of also nearly $1 million. Gan was also punished for omitting to state in his tax returns the benefits he received from SFRS such as car instalments and other personal expenses which were paid for by SFRS.

It is arguable that actually no loss was caused to the government - Gan could have used the 6 companies for entering into transactions with customers and therefore obtained the tax exemption. Instead, it appears that SFRS received customer revenue and from this, deducted the amounts allegedly paid to the 6 companies as its expenses.

His tax advisor and auditor, Chng Chor Tong, was also the subject of tax evasion charges. He was sentenced to 6 months years jail for tax evasion in relation to his own sole proprietorship. He was therefore the first practising certified public accountant to be sentenced to jail for tax evasion.

$1.9m fine for car tax evasion

Ang Hian Koon, owner of Allied Auto was fined over $1.9 million for evading over $700,000 in customs duties and over $200,000 in Goods and Service Tax (GST) in relation to the parallel importing of cars. As he could not pay the amount of the fines, his jail sentence will be 52 weeks. His business had been under-declaring the value of the cars while arranging to pay the foreign supplier in cash during face to face meetings.Although he was not the person submitting the false information to the authorities, he was aware of what was happening. The mastermind of the fraud, Tay Kien Chuan, was fined over $10 million but will serve 8 1/2 years in jail in default of paying the fine.

In total, there are about 15 persons who have been convicted or are awaiting trial for tax evasion in the car parallel import business.

Liquid assets 2

The judgment in the case of Public Prosecutor v Giorgio Ferrari is now available on the internet - http://lwb.lawnet.com.sg/legal/lgl/rss/subcourts/63675.html

Normally, such judgments are only available free for a period of about 3 months, following which only Lawnet subscribers will be able to access it.

Readers of a previous blog will remember that the case involves charges relating to Goods and Services Tax and customs duties of over $400,000 payable by his alcohol business. It was surprising that with such a large amount of duty evaded, there was only a massive fine but no jail time. The judgment now clarifies the situation.

The alcohol was stored in a licensed warehouse where no duty is paid for the time being. For supplies to diplomatic missions like foreign embassies, the alcohol can be taken out without any duty having to be paid. However, the process requires applications for approval from Singapore Customs, which would delay delivery to customers. Because these customers required the alcohol at short notice, Ferrari would supply them with duty-paid alcohol from its own stock. It would later apply for the necessary Customs permits, and it would then use the duty free alcohol allowed under the permits to replace its earlier withdrawn stock. This was a breach of the Customs rules.

The court accepted that Ferrari had gained no economic advantage as in the end, no duty was evaded, but he had gained intangible advantages. The court allowed him to pay the huge fine of just over $2.5 million over a period of 30 months subject to sureties for the whole amount being provided.

The case is interesting as the judge remarks it is the first of its kind.

Crying over liquor assets

Customs is in charge of collecting duties on imported goods. 2 major areas of duties are on alcohol and cigarettes.

Recently, a clever scam involving alcohol bottle exchanges were busted and ten people arrested in relation to fraud involving about $400,000 in import duties and taxes. Normally, alcohol meant for export escapes taxes. This is common as Singapore is a major transhipment centre. Alcohol meant for export has to be stored in a license warehouse.

The scam is supposed to involve a switch of bottles filled with alcohol with those filled with nothing or with water, and then, the latter is packed into cartons for export.The hope is that Customs would think that the exported bottles were those filled with alcohol while the actual valuable bottles were then sold in Singapore. Penalties for tax evasion can be up to 20 times the tax evaded.

Because taxes on alcohol and cigarettes are high in Singapore, there are many cases of tax fraud involving such producst. As regards cigarettes, the scope of the problem has resulted in Singapore law requiring all duty paid cigarettes to bear individual markings. Therefore smuggled cigarettes will not have this marking and court cases against smugglers are much easier to prove. Some may wonder what is to stop smugglers from printing the markings; however, this is not worth the expense. Smugglers normally source for their cigarettes from nearby countries where no such markings are required. To stem the problem, persons caught with smuggled cigarettes are slapped with hefty fines.

Jail for another food court partner

Wong Kee Yock, a panrter in All Family Food Court, was jailed for 6 months for tax evasion. His other partners were also previously jailed for the same period of time. Wong was at the same time ordered to pay about $250,000 as a penalty, which is 3 times the amount of tax evaded.

The partners of the food court had falsified their statements of account to under-declare their profits.

As a reminder, tax avoidance, which involves tax planning, is not illegal but tax evasion is illegal as it involves making false statements to the tax authorities. Sometimes, with complicated artificial multi-stage business transactions, the line between evasion and avoidance may not always be clear.

Car importer jailed and fined

Tay Kien Chuan, parallel car importer, was fined $10.8 million for tax evasion. He under-declared the value of over 2,500 cars, thus resulting in cheating the government of taxes such as import duties and Goods and Sales Tax. These taxes are based on the Open Market Values (OMVs) of the cars, which is the cost of the car overseas, plus the cost of insurance and freight to Singapore. He was sentenced to 42 weeks jail, in addition, for furnishing false information to Customs Officers regarding imports from the United Kingdom. As for his huge fine, as he is unable to pay it, he will serve 354 weeks jail in default (about 7 years).

Reports suggest that Tay was caught because he used electronic means to communicate to his Japanese suppliers to tell them to under-declare the value of the imported cars., and these messages were found by investigators He had arranged with his suppliers to meet them in person to pay them in cash for the under-declared amounts.

Others also convicted for similar offences were Tan Chi Beng and Toh Chee Wee.

In some of these cases, the companies involved were also punished by the courts.

Fake vouchers used to evade tax

As readers may know, tax evasion is illegal but tax avoidance is not. Tax avoidance refers to tax planning, while tax evasion refers to dishonest statements and documents and dishonest concealment of income.

Seah Boon Huat, a director of a construction company, was recently sent to jail for 8 months for tax evasion. He had created fictitious payment vouchers amounting to over $1 million. These were used to show that his company, Project Building Construction, had made these payments to sub-contractors. The company was also fined $60,000 and ordered to pay a penalty of over $1 million.

As for Seah, his financial penalty was the same, and all this for a tax saving of $265,000.