Case File 2

Kenny (not real name) sighed while he was filling up his income tax return. He had just keyed in a six-figure trade income, which would translate into a significant income tax bill.

Being the sole proprietor of an audit firm, Kenny had clinched a number of sizeable audit clients over the past one year. This brought in much more revenue compared to previous years. Kenny had splurged most of his income on a new car, and he was painfully aware that the larger tax bill would wipe out the rest. He would no longer have any money to pay for a dream holiday in Europe with his wife.

“If only I do not have to pay so much income tax this year.” he mused to himself.

With a few keystrokes, he could make his income tax return appear much smaller than what it really was. It was that easy. Nobody would find out since he was the only person who knew how well his audit firm was doing.

“Besides, the tax authorities usually pay more attention to the “bigger fish” and not some small fry like me. I wouldn’t be so unlucky to get caught.” Kenny rationalised.

Hands trembling, he deleted the last digit from the figures he had just keyed in. As he was about to submit his income tax return, he froze.

“This is illegal. I will lose everything if I get caught!”, he thought. This time, his conscience pricked him.

As the cursor of his mouse hovered over the “Submit” button on the form, two options were running through his mind: 

1)    Should he submit a false tax return which would under-declare income earned from his audit firm; or 

2)    Should he submit the correct tax return which would declare the correct income earned from his audit firm? 

The first option would allow him to go on a dream holiday with his wife. However, he would face grave consequences if he were to be found out, given that tax evasion is a serious crime in Singapore.

Moments later, Kenny gave in to temptation and clicked on the “Submit” button to file his tax return, which indicated a five digit figure (instead of the original six digit figure) for his trade income. He went on to under–declare his revenue for several subsequent income tax returns as well.

Eventually, Kenny was caught by the tax authorities and was jailed for tax evasion. He was also made to pay a penalty amounting to several times of the amount of tax evaded. His membership as a Chartered Accountant of Singapore was also terminated by the Institute. Further, his registration as a public accountant was also cancelled by the authorities.

Lessons Learnt

The fundamental ethical principle of integrity in paragraph 110.1 of the ISCA Code of Professional Conduct and Ethics (ISCA Code) imposes an obligation on all professional accountants to be straightforward and honest in all professional and business relationships. Furthermore, paragraph 110.2 of the ISCA Code requires that a professional accountant shall not knowingly be associated with reports, returns, communications or other information where the professional accountant believes that the information: 

(a)  Contains a materially false or misleading statement;

(b)  Contains statements or information furnished recklessly; or

(c)  Omits or obscures information required to be included where such omission or obscurity would be misleading.

In addition, the principle of professional behaviour in paragraph 150.1 of the ISCA Code requires ISCA Members to comply with relevant laws and regulations and not perform any action that would discredit the accounting profession.

However, in wilfully submitting the wrong income tax returns for several consecutive years, Kenny had breached the above fundamental ethics principles of integrity and professional behaviour.

ISCA Members are reminded that tax evasion is an offence under the Income Tax Act. Sections 96 – 96A indicates the actions that constitute tax evasion and serious fraudulent tax evasion respectively, as well as the penalties imposed for conviction. These include payment of a penalty of several times the amount of tax and imprisonment (for cases whereby there are convictions of multiple offences).

Do not make untruthful income tax returns like Kenny that would jeopardise your long term professional career as professional accountants.

Be not penny wise and pound foolish.