The ISCA Ethics Committee (EC) develops the ISCA Code of Professional Conduct and Ethics (EP 100). As part of outreach efforts to raise awareness, the ISCA EC collaborated with the tax experts who wrote this three-part article to shed light on the adoption of the tax planning standards in EP 100 (revised on 20 March 2025).
Part 1 of the article, published in CA Lab in May, set out “tax planning” arrangements that are regarded as legitimate and within the scheme and purpose of the tax statute, using the Supplementary Retirement Scheme and tax exemption accorded by the Estate Duty Act as examples.
We next discuss the terms “tax evasion” and “tax avoidance”, which may be treated by the layman as synonymous and he may also use the two terms interchangeably. However, the activities pertaining to “tax avoidance” and “tax evasion” can lead to quite distinctively different consequences.
As the former UK Chancellor of the Exchequer Denis Healey once memorably remarked, “The difference between tax avoidance and tax evasion is the thickness of a prison wall” – alluding that tax evasion is criminal in nature and may lead to incarceration for the perpetrator. In this article, we will use the window tax example to illustrate how tax drives behaviour and shed light on the concept of “tax evasion”.
Unlike “tax evasion”, “tax avoidance” is not criminal but may nevertheless still lead to pecuniary exposure. The third and last part of this article will illustrate the concept of “tax avoidance” through the use of examples such as the “99-to-1” stamp duty and personal service company cases.
Both tax evasion and tax avoidance are as old as taxation itself. When a new tax is imposed, some people may try to avoid or evade it. For example, when England imposed a window tax in the 17th century based on the number of windows in a building, some house owners boarded up some of their windows to avoid the full incidence of the tax. With such a tax avoidance measure, the owner would have suffered some disadvantages in the loss of daylight into the house.1 A more ingenious tax avoider even installed a narrow glass panel connecting two windows and argued that there was only a single window, to reduce his tax. One may therefore easily see the beginning of the tax avoidance industry even with the relatively simple window tax.
The window tax example shows that tax drives behaviour. It is then little wonder that policymakers themselves use tax as an instrument to motivate or discourage certain behaviours. The issue with tax avoidance is frequently centred around whether the tax advantage derived by the taxpayer in a certain transaction is within the scheme and purpose of the tax statute as contemplated by parliament.
It is important to understand the policy intent of the relevant statutory provisions before one is able to discern whether taking advantage of a tax benefit is legitimate or otherwise. However, due to the increasing business complexities and economic changes affecting policies through the passage of time, it may not be so easy to relate the purpose of certain statutory provisions to prevailing circumstances.
As stated by Chief Justice Sundaresh Menon in Comptroller of Income Tax v AQQ and another appeal [2014] SGCA 15 (AQQ), “Tax legislation evolves in a fragmented manner according to policy shifts at any single point in time and it may not be always possible to identify a coherent set of intentions within the Act.”2
The concept of tax evasion is associated with the negative attributes of fraud and dishonesty. Tax evasion frequently involves the under-declaration of income or the inflation of expenses, in the concealment of the true facts. Some elements of wilful, deliberate or intentional conduct in the concealment of the true facts are usually required for tax evasion.3
Mere inadvertence or ignorance is therefore insufficient as an ingredient for tax evasion, where wilfulness is required. As then-Chief Justice Wee Chong Jin had said in Re Cashin Howard [1987] SLR(R) 643 at [13], “Ignorance of the law is no excuse but that does not make every breach of the law a wilful one. What a person knows and what he ought to know are quite different matters.”
The deliberate omission of income or the fraudulent inflation of expenses in the tax return, submitted by the taxpayer to the tax authority, will constitute tax offences. In this regard, in Chng Gim Huat v Public Prosecutor [2000] SGHC 127, then-Chief Justice Yong Pung How had stated that “if the direct and circumstantial evidence proved that the appellant was aware of the purpose and nature of the payments and had deliberately omitted to declare the payments with an intent to declare tax, he would be guilty of the offences as charged”.
In a case involving tax evasion by an auditor, Public Prosecutor v Onn Ping Lan [2005] SGMC 8, the auditor was convicted of eight offences involving the omission of audit fees from his income tax return, and another 12 offences involving the falsifying of accounting records to claim management fees paid to secretarial firms.
Where a person assists another or his client in tax evasion, he may also be prosecuted under sections 96 and 96A of the Income Tax Act 1947 (ITA). The regime pertaining to penalties, fines and imprisonment for assisting someone in tax evasion is the same as that for the principal offender as the abettor is considered just as culpable as the principal offender. Further, under section 6(11) of the ITA, the Comptroller of Income Tax may also lodge a complaint of professional misconduct to the appropriate authority for disciplinary action against the professional in respect of his professional dealings with the Comptroller of Income Tax. As may be seen, tax evasion offences may lead to quite dire consequences for the perpetrator.
Whereas tax evasion involves the fraudulent concealment of true facts from the tax authority, tax avoidance involves the arrangements of financial affairs, so as to legally avoid the liability to tax.
As is well said by Lord Millett4 in his book As in Memory Long5, “Most people think that they know the difference between tax avoidance and tax evasion. They would say that tax avoidance is legal but tax evasion is illegal; but this merely explains the different consequences. The true difference between them is that tax avoidance does not seek to avoid tax but to avoid liability to tax (a distinction which politicians tend to overlook), so that a successful tax avoider still pays every penny of the tax for which he is liable; whereas tax evasion is a dishonest attempt to prevent the tax authority from receiving the correct amount of tax for which the taxpayer is liable. Evasion inevitably involves lying or concealing the true facts from the tax authority and it is this – not the failure to pay the tax due – which is illegal.”
Part 3 of the article will use the “99-to-1” stamp duty and personal service company cases to illustrate the concept of “tax avoidance”.
Tay Hong Beng, CA (Singapore), is a member of the Board of Directors of Singapore Chartered Tax Professionals (SCTP), and a former Partner and Head of Tax, KPMG Singapore. Leung Yew Kwong is Principal Tax Advisor, KPMG Singapore.
1 Hence, the term “daylight robbery” is associated with the window tax.
2 At [109] of AQQ
3See sections 96 and 96A of the Income Tax Act 1947.
4 Lord Millett was a tax barrister who later sat in the “apex court” in the United Kingdom from 1998 and 2004.
5 As in Memory Long, Publisher: Wildy, Simmonds & Hill Publishing, 2015
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