GST in Singapore
Singapore is one of the many countries in the world that imposes a Goods and Services Tax (GST), a broad-based value added tax. This tax was introduced in 1994 as part of the Goods and Services Tax Act. This Act was based on similar legislation in New Zealand and the UK.
GST was originally set at a 3% rate but has since been raised to 7%. The rate will receive a further increase to 9% at some point between 2021 and 2025. In 2018, Prime Minister Lee Hsien Loong said that this increase was needed because Singapore’s government spending had been rising.
GST in Singapore is levied by the Comptroller of Goods and Services Tax. It is imposed on all supplies of goods and services in Singapore made by a taxable person for business purposes. The importation of goods into Singapore is also subject to GST. Starting from January 1, 2020, GST will also be imposed on imported services. All import GST is collected by Singapore Customs. A GST-registered trader is obliged to charge GST when it supplies products, whether goods or services, to its customers.
Types of Supplies and GST
For the purposes of charging of GST, all goods and services supplied in Singapore are divided into three categories. The majority of goods and services are standard-rated. Standard-rated supplies are to have a 7% charge imposed against them. Zero-rated supplies technically a charge imposed against them, but this charge effectively does not exist. This is because, as their name implies, zero-rated supplies receive a 0% charge added to their cost. Exports of goods and provision of international services are zero-rated. Standard-rated and zero-rated supplies are both known as taxable supplies. Exempt supplies are completely separate from the GST system. Hence, GST is not chargeable against exempt supplies. Among the supplies which are exempt are financial services, as well as sales and leases of residential properties.
Paying, Charging, and Implementation
GST-registered entities are required to charge GST when they supply goods and services. They must also remit the tax charged to the Inland Revenue Authority of Singapore (IRAS). GST may either be charged on top of the selling price or be part of the selling price. All prices to be displayed, advertised, published, and quoted verbally or in writing are to be inclusive of GST. Violation of this rule will cause a penalty to be imposed. However, goods and services subject to service charges may have their GST-exclusive prices shown.
When a registered entity bills its customers, it must issue a tax invoice. This way, the customer may subsequently use the invoice to claim input tax on any standard-rated purchases made. Tax invoices contain information on the items being sold and the respective GST charged. They may be used to replace a normal invoice. Tax invoices must be kept for at least five years as part of one’s business records. However, when GST returns are submitted, tax invoices do not have to accompany them. Tax invoices do not have to be issued for zero-rated or exempt supplies or to non-GST registered customers.
Registered entities must keep records of all transactions that have an impact on GST declarations. One of the most common methods to simplify this process is by keeping a GST account. Most registered entities have already taken this step. Input tax claims must also be made in the accounting period related to the date of the tax invoice or any import permits.
In certain circumstances, GST registration is necessary. There are two scenarios in which a taxpayer who provides taxable supplies is required to register with the Comptroller. The first occurs when at the end of any quarter, the total value of all taxable supplies belonging to the taxpayer’s business for that quarter and the three quarters immediately preceding it exceeds S$1 million. In the second scenario, the taxpayer expects the value of the business’s taxable supplies to exceed S$1 million over the coming 12-month period. This is known as the prospective basis. Non-resident overseas businesses to which either of these scenarios applies are also required to register.
Businesses that do not fulfill either of these criteria are nevertheless allowed to register on a voluntary basis. Those which register voluntarily are required to remain registered for a minimum of two years. They are also required to comply with all GST regulations and any other conditions imposed by Singapore’s tax authorities.
Failure to register when it is required will bring about a fine of up to S$10,000. The offender will also have to pay a penalty of 10% of the tax due for each year from the date on which the person was originally required to register. Continuing offenders will be fined S$50 per day during which the offense continues to take place after conviction.
Non-resident businesses which have registered for GST are required to appoint a representative. The representative’s duties include making GST payments on the business’s behalf, as well as keeping records and accounts of all GST paid and received. Although each business may only appoint one representative at a time, a representative may represent more than one business at any time. The representative must keep separate accounts and make separate returns for each business represented.
Returns and Refunds
GST-registered traders are required to make GST payments and file electronic GST returns. These are to be made on a quarterly basis and will be based on the trader’s financial year. The return must include the total value of local sales, exports and purchases from GST-registered entities, and any GST that has been collected and claimed for the relevant accounting period.
Taxpayers are to ensure that IRAS receives their return no later than one month after the end of the accounting period used. If there is no tax due for that period, a return of ‘nil’ must still be submitted. Should the return be filed late, a penalty will be imposed. This is true whether the amount to be declared is payable or refundable.
When taxpayers submit a return to the Comptroller, they may claim input GST as a deduction. In this deduction, the total input tax paid on business purchases is subtracted from the total output tax collected from customers. The difference is the net GST payable.
GST-registered persons may occasionally request a refund from the Comptroller. Should the Comptroller approve the refund, it will usually be made within 30 days from the date of receipt of the return. GST refunds can be made through one of four methods: via electronic bank transfer, bank draft, cheque, or telegraphic transfer.
In order to promote a more vibrant business environment, the Singaporean government has introduced schemes related to GST. These schemes also help businesses manage their cash flows.
One such scheme is the Cash Accounting Scheme. The Cash Accounting Scheme is available to all small businesses which are GST-registered. Small businesses are defined as those whose annual sales total S$1 million or less. Under this scheme, a business only has to account for output tax when it receives a payment from its customers.
Another scheme related to GST is the Hand-Carried Exports Scheme. This scheme applies to overseas customers who are leaving Singapore via Changi International Airport. More specifically, the customers must be carrying the goods by hand as they leave Singapore. The scheme allows supplies being hand-carried out of Singapore by overseas customers to be zero-rated. This zero-rating also applies to supplies that would usually be standard-rated.
The Major Exporter Scheme is intended to ease the cash flows of major exporters. This scheme is targeted at businesses which are heavily involved in imports and exports. Businesses under the Major Exporter Scheme are allowed to import non-dutiable goods with GST suspended. However, as is the case with the Cash Accounting Scheme, only registered businesses that also fulfill certain criteria may benefit from the effects of this scheme.