An Introduction to GST in Singapore
For the uninitiated, GST may seem complicated, but understanding how GST works can have a significant impact on your company’s profits and expenses.
What is GST?
GST means Goods and Services Tax. For consumers, GST is an integrated tax that is incorporated into the price of goods and services in Singapore. Currently, the GST in Singapore is set at a standard rate of 7%, regardless of the nature of goods or services provided.
For companies, if you are a GST-registered business, it means that you collect GST on behalf of the Inland Revenue Authority of Singapore (“IRAS”) by including GST into the prices of your products and services; and then claim GST credits back on the products or services purchased as business expenses. Non-GST-registered companies will not be able to do so.
In short, the basic principle of GST can be summarised as follows:
In Singapore, GST-registered companies would declare how they have computed their GST through filing their GST returns regularly throughout the year.
Benefits for GST-registered companies announced in the Budget 2015
For new GST-registered companies, this year’s Budget has announced that companies that apply for GST registration on or after 1 July 2015 can look forward to a simplified process when claiming GST incurred up to six months before the date of registration.
Companies can claim GST incurred on the following business expenses:
- Goods held by the company at the point of GST registration; and
- Property rental, utilities and services, which are not directly attributable to any supply made by the company before it became GST-registered
Exemptions to GST
Generally, the following goods and services are exempt from GST:
- Financial services;
- Sale and lease of unfurnished residential properties;
- Importation and local supply of investment precious metals
- International services; and
- Exported goods
To check if your business activity is exempt from GST, consult your tax specialist.
In addition, there are general GST schemes that provide specific exemptions to GST-registered companies. A snapshot of these GST schemes is presented in the table below:
|Cash Accounting Scheme||Companies can account for output tax upon receipt of payment from customers and input tax is claimed only upon payment to suppliers|
|Discounted Sale Price Scheme||GST charged on 50% of the sale price of a second-hand or used vehicle|
|Gross Margin Scheme||GST is accounted for on the gross margin, instead of the full value of the goods supplied. This is beneficial for second-hand dealers who purchased goods free of GST|
|Hand-Carried Exports Scheme||Companies can zero-rate their supplies to overseas customers for goods hand-carried out of Singapore via Changi International Airport only.|
|Import GST Deferment Scheme||Approved GST-registered businesses can defer their import GST payments until their monthly GST returns are due, as long as they file their GST returns on a monthly basis.|
|Major Exporter Scheme||Companies are allowed to enjoy GST suspension when importing non-dutiable goods at the point of import and zero GST warehouses|
|Tourist Refund Scheme||Companies that are in the Tourist Refund Scheme (“TRS”) can grant tourists GST refunds|
|Zero GST Warehouse Scheme||Import GST on non-dutiable overseas goods is temporarily suspended, until the imported goods leave the warehouse and enter the local market.|
For certain schemes, such as the Discounted Sale Price Scheme, prior approval need not be sought from IRAS. However, for other schemes such as the Major Exporter Scheme (“MES”), companies will need to apply to IRAS for approval to obtain MES status. To understand which GST schemes your company can qualify for and its related procedures, do consult your tax specialist.
Why register for GST?
Once your company’s taxable income is (or anticipated to be) more than S$1 million, it will be required to become GST-registered. However, for some companies, savvy business owners will realise that it may be more beneficial to be GST-registered from day one. For example:
- If companies will incur expenses that are greater than its revenue in the early phase of its business, being GST-registered will mean that the company can claim GST refunds.
- For companies that are in the export business, they will be able to claim GST on expenses but exports will be zero-rated under the GST schemes. This would mean that they are in a GST refund position.
In addition, any company that intends to charge GST will be required to be GST-registered, regardless of its taxable income.
Registering for GST
When registering for GST, companies will be classified under two categories, namely:
As shown above, for companies that fall under the “voluntary” category, their GST registration process will include an additional step, where any director of the company will have to complete two e-Learning courses, known as “GST Before I Register” (prior to registration) and “Introduction to GST” (post-registration, within three months from the date of registration).
The application for GST registration can be done either online through IRAS’ electronic tax portal known as myTax Portal, or by submitting paper forms. Do note that in order to access myTax Portal, one would require a SingPass.
Before you register, here is some information that you should have:
- Company’s name and registration number;
- Business Activities of the company;
- Financial Year End;
- Issued and Paid-Up capital;
- Size of the company;
- How the company intends to prepare its GST returns
For items (1) to (4), this information can be found on your company’s Business Profile, which can be purchased from the Accounting and Corporate Regulatory Authority (“ACRA”). If you require assistance obtaining your company’s Business Profile, your corporate services provider should be able to assist you with the purchase.
With regards to how the company intends to prepare its GST returns, the company would have to disclose whether it will be preparing the GST returns internally, or choosing to outsource this function. For companies that are unfamiliar with the process, understanding how to appropriately apportion GST expenses and claims may initially seem confusing. Typically, most companies choose to outsource this function, which would allow the company to be cost-effective whilst tapping on the expertise of an experienced tax specialist.
Why understanding GST registration is important
Notwithstanding the fact that Singapore has a very pro-business climate, it takes abuse of the GST system very seriously, as this means that companies are either unfairly overcharging their customers or evading their tax responsibilities. To encourage companies and consumers to be more vigilant, IRAS grants cash rewards of up to 15% to informants who report errant companies that do not pay their GST or have falsely charged their customers GST.
Errant companies can be fined up to S$10,000 and pay a penalty equal to 10% of the tax due from the date on which the business is required to register for GST. This means that the company would be liable for all GST payments since the date it was required to register for GST, even if there was no GST collected from its customers.
As part of its regular enforcement, IRAS conducts audit programmes, which utilises data analytics tools to corroborate data and detect anomalies. In the course of such audits, IRAS may request for the following information:
- Business information and its activities
- Sales and purchase listings to verify accuracy of the figures reported in GST returns
- Supporting documents for business transactions
- Self-review checklists completed by the company
- Review of the company’s accounting system and how transactions are recorded
In addition, IRAS may request additional confirmation and information from the company’s customers, suppliers and banks. Hence, companies should be aware of the importance of maintaining proper records and should educate its employees, to avoid damage to their business reputation or excessive disruptions to their business operations.
Declaring Errors made in GST Returns
In situations where it is discovered that the company or its employees may have made mistakes in their GST returns, it would be prudent inform IRAS as soon as possible. Generally, the earlier IRAS is informed of the mistake, the lower the penalty will be. In fact, for companies that voluntarily declare errors within one year, there will be no penalty imposed.
|Type of Voluntary Disclosure||Penalty Treatment|
|Voluntary disclosure made within the grace period of one year from statutory filing deadline, and the qualifying conditions are met||No penalty imposed|
|Voluntary disclosure made after the grace period and qualifying conditions are met||Reduced penalty of:
|Voluntary disclosure for late stamping or underpayment of Stamp Duty and the qualifying conditions are met||Reduced penalty of:
No grace period for Stamp Duty
(Table extracted above from IRAS – Voluntary Disclosure of Errors for Reduced Penalties)
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