SINGAPORE Goods and Services Tax (GST) may not always be the main focus for many Singapore-based small to medium sized entreprises (SMEs). However, as the rate of GST has increased and bearing in mind the clear intention of our government to rely more heavily on indirect taxation such as GST, it seems clear that GST is here to stay. Consequently, GST should not be neglected by businesses in Singapore, including SMEs.
In this article, we will look at some of the key mechanics of Singapore's GST system such as when a GST registration liability might arise, the advantages and disadvantages of GST registration and where you can get help to better manage GST and to answer your GST questions. Our aim is to demonstrate that GST is not a tax to be feared by SMEs but rather, is a tax that need not impact your bottom line at all.
Mechanics of GST
GST is a domestic consumption tax which is chargeable on supplies of goods and services made in Singapore when the supplier is GST registered and the supplies are by way of business. The tax is designed so that the ultimate bearer is the final consumer. The tax should not be a cost to businesses, although sometimes it is. The current standard rate for GST is 7 per cent. GST is also chargeable on the importation of goods into Singapore.
When you are GST-registered, you effectively act as a tax collecting agent to assist the comptroller of GST in collecting the GST which you have charged on your local supplies of goods and services. This is referred to as output tax. The output tax collected can be offset against the GST which you have paid to your suppliers on local purchases or to Singapore Customs on import purchases. This is referred to as input tax, and as import GST.
If during a three-month period the amount of output tax you have charged is more than the amount of input tax you have paid, you are required to pay to the comptroller the excess amount of output tax. If however, during this period, the amount of input tax you have paid is more than the amount of output tax you have charged, the comptroller should refund to you the excess amount of input tax.
Register for GST
Generally, a person who makes supplies in Singapore which are more than $1 million over a period of 12 months is required to register for GST. If your turnover has not yet reached the GST registration threshold, you are still able to apply for GST registration on a voluntary basis. Such an application is subject to the approval of the comptroller and generally comes with a couple of conditions. For example, you would be expected to remain GST registered for at least two years. You would also be expected to attend one of the GST training courses run by the Inland Revenue Authority of Singapore (IRAS). The courses are designed to ensure that you have a basic knowledge of GST so that you can be in compliance with the GST law. In addition, the comptroller may also impose other conditions, for example, to have a banker's guarantee in place.
Why register?
GST registration brings with it advantages and burdens. The main advantage of GST registration is that you can recover the GST incurred on local purchases and imports of goods, although the recovery of input tax on some things, such as motor vehicles or medical expenses is not allowed. Obviously, if you are able to recover the tax you paid to your suppliers, your costs will be reduced. It is also worth remembering that most large, established businesses are GST registered - getting your business GST registered is often a signal to the market that your business is competing in the same way.
The disadvantage of GST registration is the administrative burden that comes with discharging the duties and responsibilities of GST registration. The key duty is of course to charge and collect GST on local sales, but this needs to be reported regularly on the GST return, which must be accurate and submitted on time. If the comptroller raises questions and asks for evidence to back up your claims for input tax, you need to be able to provide it, so one of the other key obligations is the need to retain records relating to your sales and purchases for at least five years.
To determine whether voluntary GST registration is really going to benefit you, it is also worth thinking about your market. If you are selling your products or services to the general public in Singapore, being GST registered will effectively increase your selling price by 7 per cent. Your customers who are not GST registered would not be able to recover the GST you charge. So although your costs are reduced because you can recover GST, your customers might not be too pleased. However, if you are selling your products or services to GST registered customers, the additional GST would not normally be a concern to them because they would be able to recover the GST charged as an input tax credit.
It is also worth noting that the export of goods or provision of international services by a GST registered person is zero-rated for GST purposes (ie the GST is chargeable at 0 per cent). Therefore, you do not need to worry about GST impacting your price for these supplies if you are registered for GST.
Where to get help?
As we all know, the Singapore government is concerned to make sure that local businesses are able to compete in the global market. One of the ways that the government offers help is through a GST assistance scheme which is administered by Spring Singapore. This scheme is available to Singapore-based SMEs which are voluntarily registered for GST and would like some financial help in setting up or improving their accounting systems and processes so that they are GST compliant. There are some criteria to be met, and if you do, then the GST Assistance Scheme supports up to 100 per cent of accounting software costs, and 50 per cent of the qualifying costs for the following cost items, subject to a maximum grant of $5,000 per company:
Professional fees and training costs charged by third party IT consultants;
Hardware costs; and
Subscription fees and one-time activation charges for a new Internet connection.
All qualifying costs must be incurred after project commencement or effective GST registration date, whichever is earlier. For more information, you can refer to Spring Singapore's website at www.spring.gov.sg
You may also refer to the IRAS website (www.iras.gov.sg) where there is an 'Ask IRAS' section that provides answers to everything you want to know about GST. And of course there is always the IRAS enquiries section, contactable by phone or in writing.
In summary, navigating GST may be difficult, but it should not be a burden to businesses, especially SMEs which choose to register for GST.
The GST rate was at 3 per cent when it was first implemented on Apr 1, 1994. It was increased to 4 per cent on Jan 1, 2003; 5 per cent on Jan 1, 2004; and then to 7 per cent on July 1, 2007.
The writer is the practice leader for indirect taxes for Deloitte South-east Asia and may be contacted at robtsang@deloitte.com
