GST Registered Businesses Singapore | Taxation
What is GST?
Goods and Services Tax (GST) is a broad-based consumption tax, which is assessed and collected at different stages of production, based on the value added at each stage. This indirect tax is known as Value-Added Tax (VAT) in other countries.
Unlike other taxes like sales tax, GST is charged at different stages of the value chain, so that the end customer doesn’t have to bear the full tax burden. In Singapore, it’s levied on the imported goods, as well as on most other goods and services supplied in the island-nation by a GST-registered business. It’s not levied on export goods to avoid double taxation.
The GST that is charged and collected by GST-registered businesses is known as Output Tax. On the other hand, Input Tax is the tax that a GST-registered business pays on purchase of goods and services for the purpose of business. The Input Tax paid by a business can be claimed back from the IRAS. The difference between Output Tax and Input Tax is the Net GST paid by any GST-registered business.
Brief history of GST in Singapore
This multi-stage tax was first introduced in Singapore in 1994, in a move aimed at shifting Singapore’s reliance from direct taxes to indirect taxes. Initially, the GST rate was fixed at 3%. The rate was increased to 4% in 2003 and to 5% a year later. In 2007, the GST rate was increased to its current level of 7%. Over the years, GST has helped Singaporeans sustain a lower income tax rate while encouraging them to save more and invest more.
An overview of taxable and non-taxable goods and services in Singapore
For the purpose of GST, a supply is considered either taxable or non-taxable.
Taxable supplies: A taxable supply can either be standard-rated or zero-rated. While standard-rated supplies are liable to pay GST at 7%, zero-rated supplies involve GST at 0%. In Singapore, “export of goods” and “international services” are considered as zero-rated supplies. GST-registered businesses can’t charge GST on their zero-rated supplies, but they can definitely claim refund of the tax they have already paid on their inputs.
Non-taxable supplies: Non-taxable supplies can be classified as either exempt supplies or out-of-scope supplies. In case of non-taxable supplies, a trader can neither charge his customers for any GST nor claim any tax refund that he might have paid on purchase of goods and services. In Singapore, “sale and lease of unfurnished residential property”, “import and local supply of investment precious metals”, and “financial services” are considered as exempt supplies.
How GST works
Let’s say a GST-registered business imports raw material for manufacturing shirts in Singapore. After manufacturing, the shirts are sold to a GST-registered retailer, who further sells them to end consumers. Check out how GST works at each stage of the chain and what would be the input and output tax for the manufacturer, retail, and consumer.
GST for manufacturer
- The manufacturer will pay GST to Singapore Customs for imported raw material. Assume that the import value is S$200. So, the import GST to be paid by the manufacturer would equal to S$14 (7% of $200). This S$14 GST will also be the Input Tax that the manufacturer will claim from the IRAS.
- Now, the manufacturer sells the shirts for S$300 to a retailer. So, the GST charged to the retailer would be S$21 (7% of S$300). This amount of S$21 will be the Output Tax payable by the manufacturer to the IRAS.
- The net GST to be paid by the manufacturer would be S$7 (Output Tax minus Input Tax).
GST for retailer
- The retailer has paid S$21 to the manufacturer as GST. For retailer, this amount would be the Input Tax that he will claim from the IRAS.
- Now, assume that the retailer sells the shirts for S$400 to an end consumer. So, GST charged to the consumer would be S$28 (7% of S$400). This will be the retailer’s Output Tax.
- The net GST to be paid by the retailer would be S$7 (Output Tax minus Input Tax).
GST for consumer
- The end consumer is buying shirts for S$400 and is paying S$28 as GST to the retailer. However, since the consumer is not GST-registered, he is not entitled to claim any GST from the IRAS for the purchase he made.
Are you required to register for GST?
As a business owner, you must register for GST when:
- Your taxable turnover for last four quarters exceeds S$1 million.
- You expect your taxable turnover for the next 12 months to be more than S$1 million. If your taxable turnover is less than S$1 million, you can still voluntarily register for GST.
Check out what GST-registered businesses need to keep in mind
- As the owner of a GST-registered business, you are required to charge GST at 7% for standard-rated supplies.
- You must submit your GST return via e-Filing within a month after the accounting period ends. If there was no transaction made during the year, you still have to submit a “Nil” GST return. Failure to file GST return via e-Filing may attract penalties of up to S$5,000. If you default on payment, you might have to serve up to six months in prison.
- As a GST-registered business, you must maintain business and accounting records for at least five years. The types of business records you need to maintain include income records, purchase and expense records, documents supporting GST declarations, statements and accounting schedules, and GST account.
- You must always display GST-inclusive prices for your goods. Failure to do so might lead to a fine of up to S$5,000.
- All tax invoices, simplified tax invoices and receipts must have your GST Registration Number.
- Any change in name, address, ownership, or structure of the business must be communicated to the Comptroller within 30 days of such change.
- In case of cancellation of your GST registration, the assets that you held on the last day of registration will be accounted for GST if the same tax was previously claimed on their purchase and if the total market value of those assets is more than S$10,000.
General GST schemes in Singapore
Cash Accounting Scheme: This scheme has been designed to ease the cash flow concerns of small businesses. A small business is one whose annual sales are not more than S$1 million. To apply for this scheme, make sure you are voluntarily registered for GST and you don’t expect your annual sales for the 12 months, after using the scheme, to exceed S$1 million.
Discounted Sale Price Scheme: If you are selling second-hand vehicles, this scheme allows you to levy GST on 50% of the selling price. No prior approval is required from the IRAS. In case you are selling a vehicle that you used for your business, you should use this scheme to levy GST.
Gross Margin Scheme: If you are in the business of selling second-hand items and you purchased those items without GST, you may use this scheme to charge and account for GST. Under this scheme, GST is assessed on the basis of gross margin instead of the full value of the item.
Hand-Carried Exports Scheme: You may use this scheme if you plan to zero-rate your supplies to overseas customers. This scheme can only be applied when the goods are hand-carried out of Singapore via Changi International Airport.
Import GST Deferment Scheme: With this scheme, you don’t have to pay GST at the time of importing the goods. You can make your GST payments when your monthly GST returns are due.
Major Exporter Scheme: This scheme is designed to help businesses making large export and import transactions. Under normal conditions, businesses have to pay GST on imports before claiming a refund from the IRAS. However, this can create cash flow issues for businesses that export goods, as no GST is levied on zero-rated supplies to compensate for initial cash outflow on imports. Under this scheme, businesses are allowed to import non-dutiable goods without paying GST.
Tourist Refund Scheme (TRS) for Businesses: Under this General GST Scheme, GST-registered businesses may provide GST refunds to tourists by engaging the services of a Central Refund Agency or by operating as an independent retailer. In both the cases, it has to be done under the electronic Tourist Refund Scheme (eTRS). eTRS allows tourists shopping in Singapore to seek GST refunds before leaving the city.
Zero GST (ZG) Warehouse Scheme: Singapore Customs administers this scheme which allows suspension of import GST on non-dutiable overseas goods, if the goods are moved to a zero GST warehouse. GST will be applicable when the imported goods enter the local market.