Goods and Service Tax, commonly abbreviated as GST, is defined as a consumption tax imposed on the
sale of most goods and services. It also includes taxes imposed on all imports into Singapore.
The main objective of implementing GST is to lower the corporate income and personal tax rates, along with shifting the reliance from the normal direct taxes to indirect taxes. This tax implementation would be lucrative for attracting many international investors while at the same time maintaining a sustainable economic growth that would create more job opportunities.
GST was introduced first on April 1st 1994 at a rate of 3%. In 2003, the rate was increased to 4% and it was even further increased to 5% in 2005. Moreover, it currently stands at a rate of 7 percent.
However, there are some special cases where the above rate does not apply, and GST remains at 0%. For example:
- Export of goods
- Supplier shipping products to a foreign address
- Services categorized under International Services
- Airplane tickets
- And local estate agent(s) selling house(s) in Australia
How do GST works?
GST is a tax that the end-consumer of a product/service meets and does not add on to the cost(s) of the company. In this case, the company in question just acts as an intermediary between the government and the consumer and its duty is to collect the said tax. In addition, GST has been designed to include output tax and input tax. Ideally, output tax is the tax collected by the seller on the sale of goods or services and input tax refers to that tax acquired on expenses and business purchases, which include import of goods. In this regard, this article presents a clear relationship between the above taxes and the following are eminent:
A retailer is required to pay GST to a manufacturer. Let us assume that a retailer purchases goods worth $700 from a manufacturer. GST paid= $700 x 7% = $10 (this is the input tax to claim from IRAS)
If the same retailer sells a handbag to an end consumer/customer at a price of $1000, then the GST collected is calculated as: GSP paid= $1000 x 7% = $70 (which is termed as the output tax to pay IRAS)
2. End consumer
The final consumer pays GST to the retailer. As in the above, we assume that purchase value remains to be $1000. GST to be paid = $1000 x 7%= $70.
It should be noted that end-consumers could not claim GST paid on their purchases from retailers since they are not GST-registered.
GST-Registration for Singapore Companies:
Ideally, every company in Singapore has to be GST-registered. This registration is split into two major categories, voluntary and compulsory registration. In addition, divisional registration and group registration also exist.
Group registration refers to GST registration for a group of companies while divisional registration refers to the independent divisions that exist within the same company that reports to GST separately.
On the other hand, if a company’s annual turnover is more than $ 1 million or if the said company is expecting to get an annual turnover that exceeds $ 1 million in the next 12 months, then it has to apply for a compulsory GST registration.
Similarly, if a company’s annual turnover is something less than $ 1 million or if a company specializes on out-of-scope supplies or if a company deals with services that are deemed as International services, then, such companies can voluntarily apply for GST registration.
In addition, the following must be fulfilled:
- Be on GIRO for GST payment and/or refund of the same
- You must provide a security deposit that has to be imposed by the Comptroller on the basis of case-by-case
The company’s director has to complete an e-learning course before GST registration. In addition, before submitting the registration form, the director must provide a registration quiz on the registration form
After successful registration, the directors are supposed to:
Attend the compulsory seminars to be introduced to GST rules and regulations by IRAS within three months from the date of their registration
- Stay GST-registered for a period of not less than two years
- Comply with the rules and regulations of GST and any other conditions that may impose by the Comptroller
Why is it important for companies to register voluntarily?
It is advisable for people to register their companies voluntarily since they can claim input tax incurred. However, the following conditions must be met if a company has to claim any input tax:
- It should be GST-registered
- Goods/services must be supplied or imported by you (the company in question)
- Input taxes are directly related to out-of –scope supplies or taxable supplies
- Goods/services must be used exclusively for business purposes
- Claims are not from any of the expenses stated under GST-Regulation 26 and 27
However, the benefit that one receives for being GST-registered outweighs its costs. For instance, most companies have realized a tremendous increase in administrative costs of keeping records. Therefore, directors of such companies should come up with a cost-benefit trade off. For more information, one can visit http://www.iras.gov.sg/irashome/default.aspx.