What is tax planning?
Tax planning has taken a position of dominating importance in the economic life of a taxpayer. This is because the primary objective of planning is to conserve the hard work of the taxpayer so that he can enjoy the fruits of his income to the maximum possible extent. Business owners or individuals ought to be familiar with their accounts even for startups. Otherwise, startups can seek to outsource to accounting services provider that provide accounting services for startups for accurate reporting. Tax planning, consequently is a measure for the benefit of the taxpayer by which he can plan to process his income-earning activities in a way that he remains within the ambits of the tax laws and reduces the tax incidence to the minimum. Tax planning is avoidance but not the evasion of tax.
Is tax avoidance legal?
There is absolutely no reason why a taxpayer should not resort to a device to divert income before it accrues to him. The effectiveness of a device is not dependent upon a consideration of morality. It is dependent on the operation of the Income Tax Act. The avoidance of tax is not tax evasion and it carries an ignominy with it for it is sound law, and certainly not bad morality, for anybody to so arrange his affairs as to reduce the brunt of taxes to the minimum. The courts have said that there is nothing sinister in arranging one’s affairs in such a way to keep taxes as low as possible.
Taxation is a cost both to the individual and business. The burden of personal income tax on individuals whether borne by the individual himself, his employer or partly by both is a consideration of great importance. In Singapore, as in any other country, the total burden of income tax, whether company or personal, is determined by two factors. Firstly, the amount of income tax that is subject to tax and secondly, the rates of tax that apply to such income.
Why tax planning is important.
The idea of transferring oneself outside taxation provisions in Singapore is not a new one. It has been implemented by taxpayers of all classes and the Comptroller, in his turn, has not hesitated to build barriers against this. None of these barriers is insurmountable but one must be aware of their existence since they are there as a matter of fact. Planning therefore is of the utmost importance of exercises of this nature.