What is GST
GST is a broad-based tax on domestic consumption, it is also known as value added tax (VAT) in other jurisdictions. GST is charged to the end customer and the business selling the goods or services is responsible for charging and collecting the the tax from its customers as well as paying the tax to the IRAS, effectively, the business acts as a collection agent for IRAS. The tax is applied at the prevailing GST rate. The current rate in Singapore is 7%, although the Government has announced an intention to hike the rate to 9% in the near future.
There are certain services exemptions such as the provision of most financial services, supply of digital payment tokens, the sale and lease of residential properties and trading of investment precious metals.. GST is also levied on imported goods while export of goods and certain types of services provided to overseas clients are not charged GST.
Who is required to register for GST
GST can only be charged by GST registered businesses. Only businesses that exceed S$1 million in annual taxable turnover are required to be registered. However, companies with revenues below this threshold can voluntarily register as well.
The GST that a business collects from customers is called output tax. Conversely, GST paid on a business's purchases or paid to its suppliers is called input tax. A GST-registered business can claim credit for its GST input tax thereby only paying GST on the amount of value-add, which is calculated as the difference between its output and input tax. This allows companies to lower its cost by claiming credit on its input tax as output tax are eventually pass on to the end customer.
Why should a business voluntarily register for GST?
A business may wish to consider the following:
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Turnover is near S$ 1 million: it takes away the burden of monitoring turnover constantly.
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Cost and responsibilities of GST submission, including filing tax return monthly or quarterly
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Significant purchases from suppliers who are GST-registered. The ability to claim input tax will improve profitability.
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GST-registered customers will prefer the business to be GST-registered in order for the customers to be able to claim input tax.
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However, if customers are not GST-registered, increasing selling price to include GST may make the business' products or services uncompetitive.
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GST must be charged to customers. You can either markup your prices, absorb GST or something in between.
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If you mark up your prices, you may lose customers due to price increase if you a B2C business or if you are selling to non-GST registered business.
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If you are a B2B business and most of your clients are GST-registered, you can increase prices without losing customers as your customers can claim back the GST.
WHAT YOU NEED TO KNOW ABOUT GST
GST registered businesses must file a GST Form 5 tax return to IRAS on a monthly/quarterly basis. In the case of no GST transactions, the business must still file a nil return.
In filing Form 5 tax return, companies must report both their input tax and output tax.
If the output tax is greater than the input tax, company must pay the net amount to IRAS.
On the other hand, IRAS owes the company a refund if the input tax is greater than the output tax
Companies must pay the tax to IRAS within 1 month after filing a Form 5 tax return.
