SINGAPORE - The taxman has clawed back more than $2.3 million in unpaid taxes and penalties from private tutors and tuition centre proprietors who under-declared their income.
An ongoing audit of players in the billion-dollar tuition industry has found under-declaring income to be a "common problem."
The Inland Revenue Authority of Singapore (Iras) has audited more than 120 tuition centre owners and tutors over the past few years, and its biggest catch so far is a tuition centre owner who under-reported his agency's income by about $3.6 million over seven years.
He earned between $400,000 and $800,000 a year, but declared only $50,000 to $150,000.
His agency has two full-time tutors and hired up to 10 part-timers, depending on the number of students enrolled. As he came clean after Iras wrote to him and asked him to review his tax submissions, he was not taken to court. But he had to pay a penalty twice the tax under-reported. In all, he paid almost $2 million in taxes and penalties.
Iras regularly picks specific groups of self-employed individuals to audit to deter tax cheats. In recent years, it has checked on doctors, property agents and maid agents, among others. It recovered $3.2 million in taxes and penalties from over 130 doctors audited, The Straits Times reported last year.
In its tuition industry checks, Iras found that besides under-declaring income such as from tuition fees, some agencies also omitted other sources of income, such as from the sale of course materials and registration fees.
Some tutors and centre owners also claimed for their personal expenses, such as personal phone bills, when these are not income tax deductible. Others made claims for business expenses based on estimates, without proper documentation.
Iras is currently auditing about 50 more cases.
Industry insiders told The Sunday Times that top tutors can earn $1 million or more in a year. They estimate there are up to 20 such millionaire tutors here. These tutors specialise in teaching one subject, holding classes for up to 50 students at a time with rates that go up to $90 an hour per student.
But the average full-time tutor earns between $3,500 and $6,000 a month, those interviewed say.
But how much a tutor earns is really anyone's guess, as those who work from home do not issue receipts, unlike tuition agencies.
Contrary to popular perception, a tuition agency may not necessarily be a money spinner, said co-founder of Mind Stretcher Learning Centre Alvin Kuek.
He said: "I get offers to take over failing tuition centres all the time. The industry is very competitive and you have to constantly improve and add value for students or they will go to another person."
He has four friends who used to hold finance or engineering jobs and who started tuition agencies hoping to make their pot of gold. All failed within a few years, he said.
Meanwhile, Iras tracks down tax evaders through various ways, including tip-offs.
In one case, a member of the public alerted Iras that a man in his 40s was giving tuition from his home. The tutor had declared his income as between $30,000 and $40,000 a year when it was actually between $100,000 and $150,000.
He under-declared his income by more than half a million dollars over five years. He also paid his wife almost $50,000 a year for administrative work, a sum Iras found "excessive". In the end, he had to pay taxes and penalties of close to $110,000.
An Iras spokesman stressed that all tutors and agencies have to put in place a record-keeping system so that their income tax declarations are supported with the required documents, such as receipts, accounting records and bank statements.
"We want to encourage those who have freelance income from tuition and have yet to report them in their past income tax returns to come forward to voluntarily declare such income to us," the spokesman said.
"Voluntary declaration of omissions will result in a much lower penalty than omissions discovered by Iras."
This article was first published on November 9, 2014. Get a copy of The Straits Times or go to straitstimes.com for more stories.