The Major Exporter Scheme

Another reason why an SME may register for GST is to be eligible for the favourable import relief schemes. In essence, these schemes offer GST relief at the point of importing goods, hence alleviating cash flow issues for traders who primarily export goods that are imported.

The Major Exporter Scheme (MES), for example, allows traders to suspend GST at the point of importation of the goods. GST will only be charged if the goods are subsequently supplied locally. To be eligible for the MES, traders must satisfy certain conditions, including exporting more than 50 per cent of their total supplies made.

Previously, approved MES traders were required to renew their MES status every three years and to submit an auditor's positive assurance report that the numbers reported for GST are fair and correct. These renewal procedures were seen to add to the compliance costs of MES traders.

However, the IRAS has announced on 30 May 2008, that this requirement will be replaced by a simpler procedure from Jan 1 next year. The new procedure requires MES traders whose status expires post this date to complete a declaration form. The IRAS has therefore effectively shifted the onus to the MES trader to be MES compliant without the need for an auditor's positive assurance report.

While one may view this change to the MES renewal procedure to be a relief, MES traders still need to remain compliant and vigilant of their processes, as they are required to make a formal declaration of their compliance without any third party assurance. Any non-compliance can therefore potentially result in revocation of the MES status and penalties.

As can be seen, there are a number of issues for an SME to consider before registering for GST. SMEs therefore have to make the right choice from the word go. If they opt to register, there are ways in which they can manage the cashflow costs, a number of which is outlined in this article. However, there are also administrative costs that need to be consistently evaluated. The message here is that GST is no longer a small administrative issue and SMEs need to be vigilant at all times to avoid the negative consequences of any failure to properly account for the tax.

Koh Soo How is a tax partner with PricewaterhouseCoopers (PwC) Singapore, where he specialises in GST and leads the PwC VAT/GST network in Asia-Pacific. He advises clients on VAT/GST matters, including advising clients on dispute analysis and resolution matters arising from audits conducted by the Inland Revenue Authority of Singapore (IRAS) and helping clients improve their GST compliance and staff training.

Before joining PwC, he was with the IRAS where he was a member of the team that was responsible for the implementation of the GST system in 1994. He was an Assistant Comptroller of GST with the primary responsibility of setting up the GST audit function. He was also involved in developing policy and operational rules for specialised issues and transactions such as the export of goods, tourist refunds and record-keeping.

Eudora Lee is a senior tax consultant with PwC Singapore.

This article was first published in The Business Times on December 16, 2008.