Understanding GST
GST, which stands for Goods and Services Tax, is a consumption tax applied to all products and services in Singapore, including imported goods. It is similar to VAT (Value Added Tax) charged in other countries. The Singapore GST rate has recently increased from 7% to 8%.
Updated GST Rates for 2023
Effective January 1, 2023, the GST rate has increased from 7% to 8%. It will further increase to 9% from January 1, 2024, as announced in Budget 2022 by Singapore’s Minister for Finance. This change affects all GST-registered businesses that sell or purchase goods and services subject to the standard rate of GST. To avoid cash flow difficulties and penalties for non-compliance, businesses should prepare for the GST rate hike.
Impact of Singapore GST on Your Business
As an operator of a GST-registered company, you are required to include GST in the prices of the goods and services you sell or provide. You must then remit the collected GST to IRAS (Inland Revenue Authority of Singapore).
GST is not usually an expense for the company itself. The cost of GST is indirectly passed on to consumers, with businesses acting as intermediaries collecting GST on behalf of IRAS.
For instance, if your product costs $1,000, you charge your customer $1,070 ($1,000 for the service and an additional 8% GST tax of $80). You then pay this $80 to IRAS when filing your GST tax every quarter.
Benefits of Registering for GST
Registering for GST as a company offers several benefits, including:
- Lower operating costs and prices, as the burden of GST falls on the consumer.
- Enhanced credibility with customers, as most reputable companies are GST registered.
- Fairness, as GST taxes individuals when they consume, not when they earn.
- Encouragement of savings and investments, as GST does not tax them.
- Ability to claim GST incurred on purchases, helping to recover expenses and lower costs.
Example of recovering GST costs:
Sales received: $1,000 → GST payable: $80
Purchases made: $100 → GST claimable: $8
Total net payable to IRAS: $72
Drawbacks of Registering for GST
There are also disadvantages to registering for GST, including:
- Administrative responsibility of filing GST tax reports annually.
- Requirement to understand GST details or hire an accountant.
- Potential dissatisfaction from customers, especially those not GST registered, due to increased selling prices.
Is GST Registration Mandatory for My Company?
GST is a self-assessed tax, and it is crucial to monitor whether your company needs to be registered. There are two types of GST registrations:
1. Compulsory Registration
When your business turnover exceeds $1 million in the past 12 months or is expected to exceed $1 million in the next 12 months.
You must submit the GST application to IRAS within 30 days if your revenue exceeds $1 million. Failure to register within the deadline may result in penalties.
2. Voluntary Registration
You can voluntarily register for GST even if you don’t meet the compulsory criteria. However, additional requirements apply, and you must stay registered for a minimum of two years.
Exemption from Registration
In Singapore, there is a provision that allows companies to be exempt from Goods and Services Tax (GST) registration. To qualify for this exemption, companies must meet specific criteria and apply to the Inland Revenue Authority of Singapore (IRAS).
The first criterion is having a negative net balance of GST collected for supplies compared to the tax paid for purchases. Essentially, the company should have received a refund from IRAS. Additionally, at least 90% of the company’s total revenue must come from supplies that are not subject to GST. These supplies are known as zero-rated supplies. It’s important to note that supplies falling outside the scope of the GST Act are considered out-of-scope supplies. Lastly, companies making sales within a Zero GST Warehouse also qualify for an exemption.
If a company is exempted from GST registration, it cannot claim a refund for the GST incurred on business purchases. However, if a business expects to receive a credit for the paid GST, it is required to register for GST.
GST Schemes for Businesses in Singapore
Singapore offers various government-run assistance schemes to support businesses in managing their GST obligations and cash flow.
The Tourist Refund Scheme allows tourists to claim a refund on goods purchased from GST-registered retailers in Singapore, provided the goods are taken out of the country.
The Cash Accounting Scheme is designed for small businesses with annual sales below SGD 1 million. It helps them manage their cash flow by allowing GST payment upon receipt of payment from their customers, instead of at the time of supply.
The Major Exporter Scheme aims to enhance cash flow for major exporters with significant imports. It provides benefits such as deferment of GST payment until the 15th of the following month.
Under the Gross Margin Scheme, GST is charged only on the gross margin of goods. This scheme benefits businesses involved in the sale of second-hand goods, antiques, and works of art.
The Zero GST Warehouse Scheme allows GST-registered businesses to convert their warehouse into zero-GST warehouses. This enables them to bypass the GST process for goods stored in the warehouse.
The Hand-Carried Exports Scheme allows businesses to zero-rate goods supplied to overseas customers if the goods are carried from Singapore via Changi International Airport.
Lastly, the Import GST Deferment Scheme allows businesses to defer paying GST on imports until their monthly GST returns are due. This means that businesses are not required to pay GST at the point of importation.
These GST schemes aim to assist businesses in Singapore by simplifying processes and improving cash flow management.
Registering for GST in Singapore
If you are considering GST registration in Singapore, it’s important to gather the necessary information beforehand. Here’s what you’ll need:
- Name and registration number of your company.
- Financial year-end for your business.
- Details about your business activities.
- Size of your company.
- Issued capital of your company.
- Paid-up capital of your company.
The registration process involves the following steps:
- Submitting a paper or online application to the Inland Revenue Authority of Singapore (IRAS) for GST registration. If you choose to apply online, you can do so through the myTax Portal. Alternatively, you can send a written application to the physical address of IRAS in Singapore.
- Once your application is processed, you will receive a notification from IRAS confirming your GST registration. The confirmation letter will include your GST Registration Number and the date of registration.
Singapore GST registration requirements
Once your company is registered for GST, you will remain registered for a period of 2 years. As a GST-registered company, you are required to charge the tax on supplies at the prevailing rate, except for relevant supplies subject to customer accounting. The tax collected from customers is referred to as output tax, which you will need to pay to IRAS.
On the other hand, input tax refers to the GST incurred on business purchases and expenses. If your business meets the criteria for claiming input tax, you can offset the GST paid on purchases and expenses.
This means that only the value added at each stage of the supply chain is taxable.
GST-registered companies must levy GST and file returns under the following circumstances:
- When their total taxable turnover exceeds S$1 million over a period of 12 months. This includes the total value of all taxable supplies in Singapore for the current quarter and the previous 3 quarters. However, if the value of taxable supplies is not expected to be less than S$1 million in the next 4 quarters, GST registration is not mandatory.
- When their taxable turnover is expected to exceed S$1 million in the upcoming 12 months.
For periods starting from 1st January 2019, the taxable turnover is calculated on a calendar year basis to determine registration liability. Therefore, it’s necessary to assess your annual taxable turnover at the end of each calendar year (i.e. 31st December) and register for GST if it exceeds S$1 million. To help you determine your GST registration liability, you can utilise the GST Registration calculator (from 2019) as a useful tool.
Paying for GST in Singapore
When it comes to Goods and Services Tax (GST), it’s important for a registered business to follow certain guidelines for billing and payment. Here’s what you need to know:
- Displaying GST-Inclusive Prices: A GST-registered business must quote prices that include GST on all displayed, verbally quoted, published, or advertised prices. Failure to display GST-inclusive prices may result in penalties.
- Issuing Tax Invoices: When billing customers who are registered for GST, it is necessary to issue a tax invoice. This document serves as proof of purchase and allows customers to claim input tax on their standard-rated supplies. The tax invoice should include information about the product and the amount of GST charged.
- The tax invoice does not need to be submitted with GST returns.
- It should be issued within 30 days from the time of supply.
- No tax invoice is required for deemed, zero-rated, and exempt supplies.
- Record-Keeping: It’s important to maintain records of all business transactions related to GST. Claims for input tax should be made during the accounting period based on the date of the tax invoice.
- GST Return Filing: As a GST-registered Singapore company, you are required to submit a GST return based on your accounting period. GST collection should start from the effective date of registration.
- File an F5 tax return, even if there were no GST transactions during the period.
- Payment of the tax owed to IRAS should be made within 30 days after filing the return.
- Report both input and output tax when filing the return.
- Calculate the net GST by subtracting output GST from input GST.
GST Refund in Singapore
In certain cases, companies can claim a GST refund if they have incurred more expenses than revenue and are registered with the IRAS.
- Businesses involved in exporting goods can claim GST on their expenses. Exports are considered zero-rated supplies under the GST scheme, allowing for a GST refund in Singapore.
- Singapore tourists who shop at participating GST-registered retailers can also benefit from the Tourist Refund Scheme. They can claim a refund of the GST paid on goods that they carry out of Singapore.
Ensuring compliance with GST regulations and understanding the processes for invoicing, filing returns, and potential refunds is crucial for businesses in Singapore.
Receiving the GST Voucher 2023
If you’re wondering when you can expect to receive the GST Voucher in 2023, here’s what you need to know. The Ministry of Finance (MOF) in Singapore has announced that eligible Singaporeans will receive up to S$700 in cash in January 2023. This initiative is aimed at assisting citizens in coping with the GST increase and the rising cost of living.
The Assurance Package is designed to benefit approximately 2.9 million adult Singaporeans. They will receive up to S$200 in cash. Additionally, about 2.5 million individuals will receive an extra S$500 as part of the Cost-of-Living (COL) special cash payout. These payments will be made in a single disbursement.
The one-time COL special payment is part of the S$1.5 billion Support Package, which was announced by Deputy Prime Minister and Minister for Finance, Lawrence Wong, in October 2022. The objective of this package is to provide support to Singaporean households.
To be eligible for the COL special payment, individuals must be Singaporeans over the age of 21 with an assessable income of less than S$100,000 in the Year of Assessment (YA) 2022. Additionally, they should not own more than one property.
The specific amount disbursed will vary between S$300 and S$500, depending on the individual’s taxable income.
Payment channels for the GST Voucher include:
- Direct crediting to your savings/current bank account (fastest method)
- Cheque (may take up to 15 days to receive)
- Cash can be credited at local UOB, OCBC, DBS, or POSB banks for GST Voucher – Cash recipients.
To qualify for the GST Voucher, you must meet the following criteria:
- Be a Singaporean residing in Singapore.
- Be aged 21 years or above.
- Own not more than one property.
- Have your 2017 income assessed by the IRAS.
- The Annual Value of your home or probable annual rental of your property should be determined by 31st December 2018.
By fulfilling these requirements, you can benefit from the GST Voucher programme and receive financial support to help manage the impact of rising costs in Singapore.
Frequently Asked Questions
What is the purpose of GST in Singapore?
Goods and Services Tax (GST) is a tax levied on the sales of goods and services in Singapore. The government utilises the revenue generated from GST to fund public services and programs. While most goods and services are subject to a standard rate of 7% GST, certain essential items are exempt. Consumers pay GST when purchasing goods and services, and businesses are responsible for collecting the tax and remitting it to the government.
Who benefits from GST in Singapore?
In Singapore, the Goods and Services Tax (GST) is primarily advantageous to consumers. As a sales tax applied to most goods and services, it is the buyers who directly experience the impact of GST. When businesses charge and collect GST on taxable goods and services, the government utilises these funds to finance public services and programs that benefit the entire population in the long term.
How can I calculate GST?
To calculate the amount of GST applicable to a taxable good or service in Singapore, you can use the following formula:
GST amount = Taxable value x GST rate
For example, if the GST rate is 8% and the taxable value of a good or service is $100, the GST amount would be $100 x 8/100 = $8.
To determine the total amount to be paid, including GST, you can add the GST amount to the taxable value. In this case, the total would be $100 + $8, which equals $108.
It’s important to note that the current GST rate in Singapore is 8%. However, certain goods and services may be exempt from GST or have a lower rate. It’s advisable to consult the supplier or the Inland Revenue Authority of Singapore (IRAS) for specific details on how GST applies to a particular type of goods or service.
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