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I'm thinking that for government teams, the prohibition likely is an effort to align team bonding activities with professionalism and propriety and to avoid any venues associated with nightlife or potential reputational risks. I didn't know about this... it's interesting to note.
Karaoke in Singapore can be wide spectrum of shades of gray shadiness. The government doesn’t want to leave any rules open to the interpretation especially if add-ons included 😁. Having said that, you might want to consider looking into fine print such as karaoke in government open facility such as SAFRA instead of Geylang area or seek an approval from higher management/HR on the venue
As an (especially western) expat, you probably know Singapore especially government work on permission rather than forgiveness 😁
Anyone in public sector is really aware of not been as seen doing anything that might be linked to corruption.
That can be as simple as not accepting simple gifts or nicer dinners that are often part of the deal making or team bonding process in other countries.