How Can Your Business Prepare for the GST Rate Increase?

When the government announced plans to increase the Goods and Services Tax (GST) rate from 7% to 9% in Singapore, it sent ripples of concern throughout the business community. As the GST increase looms closer, entrepreneurs, small and medium-sized enterprises (SMEs), freelancers, and property investors in Singapore are scrambling to figure out how to best prepare for the transition. It’s more than just a simple percentage increase, GST rate change can affect how the GST is calculated, how it affects imports and exports and even how records are kept.

What is GST for?

The Goods and Services Tax (GST) is a value-added tax that is imposed on the supply of goods and services in Singapore. Wondering when Singapore last increased the GST rate? Since its implementation in 1994, the rate has remained unchanged at 7% – until now. The government of Singapore announced plans to increase the GST rate:
(i) 7% to 8% with effect from 1 Jan 2023; and
(ii) 8% to 9% with effect from 1 Jan 2024.

The GST rate change was proposed as part of the government’s efforts to raise revenue to fund its long-term spending needs, particularly in areas such as healthcare and infrastructure. It is a significant development for businesses in Singapore, as it will impact their prices and operations. GST is a consumption tax that is paid by the end consumer, this means that the GST increase will affect the prices of goods and services in Singapore – which could potentially impact consumer spending.

What do GST-registered companies need to do?

Companies that are prepared for the GST increase will be able to operate more efficiently and with less risk of non-compliance. The Inland Revenue Authority of Singapore (IRAS) has prepared a checklist for companies to help them prepare for the GST rate change. To ensure a smooth transition, companies can carry out the following:

1. Review your prices and revise them if necessary

To ensure that your business remains competitive, it is important to review your prices and revise them if necessary. Companies may decide to keep the GST-inclusive price the same in order to compete in the market by absorbing the increase in GST, resulting in the GST-exclusive price being lower after the GST rate change This is especially important for businesses that operate on thin margins, as a small decrease in prices can have a big impact on their bottom line.

2. Update your accounting and invoicing systems

As the GST rate increases, your accounting and invoicing systems will also need to be updated to reflect the new rate in Singapore. This will ensure that you charge GST at the correct rate on your sales invoice. In the event that the accounting system is not updated, you would still have to account for the output tax by using the tax fraction of 8/108 on the total payment received for standard rated supplies (or 9/109 effective from 1 Jan 2024). Companies that are unable to recover the differences from customers will end up having to absorb the rate differential. IRAS may also impose penalties for failure to account for GST on your supplies at the correct rate. And that our professional accountants at Chartsworth will make sure that the GST changes are being implemented in your accounting software.

3. Communicate the changes to your customers

The GST rate change will also affect your customers, so it is important to communicate the changes to them in a timely and transparent manner. Make sure to inform your customers of any changes to your prices after 1 Jan, and provide them with clear explanations of how the GST rate increase will affect them. This will help to build trust and maintain good relationships with your customers. It is also important that you adhere to the IRAS e-tax guidelines regarding displaying prices that are inclusive of the new GST rate.

4. Train staff on applying the correct rate

Training your staff on the correct application of the GST rate is crucial for ensuring compliance and avoiding costly errors. Your employees need to be aware of the change, and how it will affect the prices of goods and services they are selling or purchasing. This includes understanding the new GST rate calculation and how it is applied to different products, services and transactions. Additionally, employees should be trained on proper invoicing and record-keeping procedures for GST transactions.

5. Keep records of GST transactions

As the GST rate changes, it is important to keep detailed records of all GST transactions. This includes invoices, receipts, and other documents that show the GST amounts charged and claimed. Proper record keeping will ensure that your business remains compliant with GST regulations and that you are able to claim GST input tax from the government.

What do I do about transactions straddling 1 Jan 2023?

1. Invoice issued before 1 Jan 2023[1]
Payment received Goods delivered / services performed GST rate to apply Remarks
Before 1 Jan 2023 Before 1 Jan 2023 7% 7% GST rate will apply to the supply of goods and services when either of the following conditions are met: (a) Payment in full is received prior to January 1, 2023, or (b) The goods have been fully delivered or the services have been fully performed on or before January 1, 2023
On/after 1 Jan 2023
Part before and part on/after 1 Jan 2023
On or after 1 Jan 2023 Before 1 Jan 2023
On/after 1 Jan 2023 8% 8% GST rate will be applied to the supply of goods or services if full payment is received and the goods are fully delivered or services fully performed on or after January 1, 2023
Part before and part on/after 1 Jan 2023 7% and 8% (a) The value of goods delivered before 1 Jan 2023 is subject to 7% GST and (b) The value of part goods delivered after 1 Jan 2023 is subject to 8% GST.
Part before and part on or after 1 Jan 2023 Before 1 Jan 2023 7% Products are subject to 7% GST when they are fully delivered before 1 Jan 2023.
On/after 1 Jan 2023 7% and 8% (a) The value of goods delivered before 1 Jan 2023 is subject to 7% GST and (b) The value of part goods delivered after 1 Jan 2023 is subject to 8% GST.
Part before and part on/after 1 Jan 2023 7% and 8% (a) The lower of the value of the following is subject to 8% GST: (i) partial payment received on or after 1 Jan 2023 or (ii) part goods delivered on or after 1 Jan 2023 and (b) The remaining value of the supply is subject to 7% GST.
2. Invoice issued on/after 1 Jan 2023[2]
Payment received Goods delivered / services performed GST rate chargeable based on the general time of supply Can I elect to apply 7% GST? Remarks
Before 1 Jan 2023 Before 1 Jan 2023 7% Not relevant Full payment is received before 1 Jan 2023, therefor supply is subject to 7% GST
On/after 1 Jan 2023
Part before and part on/after 1 Jan 2023
On or after 1 Jan 2023 Before 1 Jan 2023 8% Yes You can elect to apply 7% GST on the full value of supply as goods are fully delivered before 1 Jan 2023.
On/after 1 Jan 2023 No You cannot elect to apply 7% GST as the goods are delivered on or after 1 Jan 2023.
Part before and part on/after 1 Jan 2023 Yes, on part of the supply You can elect to apply 7% GST on the value of part goods delivered before 1 Jan 2023. The remaining value of the supply (i.e., part goods delivered or part services performed on or after 1 Jan 2023) is subject to 8% GST.
Part before and part on or after 1 Jan 2023 Before 1 Jan 2023 Part payment before 1 Jan 2023 – 7% GST Part payment on/after 1 Jan 2023 – 8% GST Yes You can elect to apply 7% GST on the full value of the supply as goods are fully delivered before 1 Jan 2023.
On/after 1 Jan 2023 No You cannot elect to apply 7% GST as the goods are delivered on or after 1 Jan 2023.
Part before and part on/after 1 Jan 2023 Yes, on part of the supply You can elect to apply 7% GST on the higher of the value of: (i) part payment received before 1 Jan 2023; or (ii) part goods delivered or part services performed before 1 Jan 2023. The remaining value of the supply is subject to 8% GST.

Engage a professional accounting company in Singapore

Navigating the changes of the GST rate increase and applying them to your business can be a challenge. An experienced accounting company like Chartsworth can help to guide you through these changes and so that you stay compliant with the tax requirements of Singapore. This way, you and your team can focus on growing the business, instead of time-consuming day-to-day operations. Our qualified Chartered Accountants (CA) are skilled and knowledgeable and ready to share their expertise.

Speak to us today to learn more.

 

[1] IRAS e-Tax Guide 2023 GST Rate Change: A Guide for GST-registered Businesses (Third Edition), Page 43
[2] IRAS e-Tax Guide 2023 GST Rate Change: A Guide for GST-registered Businesses (Third Edition), Page 44 & 45