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Tax & AccountingJuly 12, 2022

Trust and tax

By: Associate Professor Darren Koh

Expert opinion

The development of creditability and trust between corporate taxpayers and tax authorities like the IRAS has been a long journey. Associate Professor Darren Koh from Singapore University Social Sciences shares his thoughts on this topic.

As I often remark to my students in class — you all work for or will soon work for firms and taxpayers who want to get their tax compliance right and hire the right people to get it right. However, the Inland Revenue Authority of Singapore (IRAS) has to deal with taxpayers who want to get it right and taxpayers who either do not know what they are doing or, worse, are willfully ignorant about the proper tax treatment of an item is.

The truth is no tax authority in the world has the time or the resources to review every tax return closely or audit every submission to ensure the correct tax assessment is issued. There has to be a significant component of trust in the system: trust by the tax authorities that the submissions are accurate and complete and faith the taxpayers will be fairly treated under the law.

However, trust does not just happen. We all approach strangers with different levels of wariness: the extroverts will pour themselves over a stranger, and the introverts will manage to work out exactly how much distance they can put between themselves and others. But at the end of the day, as the Dalai Lama is reputed to have said, “You can’t buy trust in a supermarket.” It is fostered and grown. You do not need to be best friends, but you do need to have a healthy respect for one another. The hallmarks of a trustworthy person — whether a taxpayer, a tax authority or even a friend — are still the same and include openness, transparency, honesty, and integrity. The last two factors also mean owning up to mistakes and striving to improve.

The IRAS has provided many guides and insights into its thinking. They have also reached out through the professional bodies to signal where things are heading. That, in many ways, is them being open and transparent. The IRAS recently launched a Tax Risk Management and Control Framework for Corporate Income Tax (CTRM), bringing to the fore the question of tax governance for companies. This has been buried with the day-to-day accounting systems and under the Financial Controller’s many ledgers for some time. Participation in the CTRM is voluntary, and some have muttered that it is another load of work to be done for nothing since it does not reduce the annual tax compliance burden. If nothing else, it is more work to formally draw up systems and have them audited and submitted for certification.

Still, it would be best to consider it a trust-building exercise. A taxpayer willing to invest in managing their tax risk is a taxpayer demonstrating it is one that wants to get their taxes right. And not only is it doing so — it is doing so with openness and transparency. It is a step along the way of building trust. This journey of trust-building does not start here. This journey of tax risk management includes many steps from ensuring you have knowledgeable staff (are they trained in Tax?), with the right tools (really, the era of 14-column analysis paper is over), and an accounting system that can provide the details that the tax accountant requires. It is also a journey that takes time to build. We all know it is an investment in building a good working relationship with IRAS. Sometimes, that relationship is the intangible benefit, meaning the CFO has one less thing to worry about.

And isn’t that what we want to do for the CFO?

Darren Koh
Associate Professor Darren Koh
Vice Dean, School of Law Singapore University of Social Sciences
Darren Koh joined the School of Business of SIM University (now the Singapore University of Social Sciences) as Head of Area - Taxation and Business Law and is now the Vice-Dean of the School of Law and the Head of Programme - Master of Taxation. He is also a Chartered Accountant (England and Wales) and a Chartered Tax Adviser (United Kingdom). Darren has a keen interest in international taxation, particularly in the field of transfer pricing and tax-efficient supply change structuring.
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