The GST rate in Singapore is expected to increase this coming 2023, which will tremendously impact business operations. In the Budget 2018, a phased approach to the future rate increase was announced, which will see the GST rate will increase to 8% from 1 January 2023, then to 9% on 1 January 2024.
Goods and Services Tax
doesn’t only affect local businesses but also foreign enterprises registered for GST. Considering that this will be the first time the rate
will increase since 2007, companies need to understand the impact of the change and ensure they are well-prepared.
The GST rate increase comes at a time when inflation is adversely affecting the economy. However, the government has to increase its tax revenue to fund healthcare and social spending.
Since the last raise in 2007, government expenditure has significantly grown. Public spending rose from $33 billion to $75billion annually from 2007-2019. Meanwhile, Government healthcare expenditures also increased from about $2.2 billion to $11.3 billion.
This has led to a budget deficit, forcing the government to withdraw funds from the reserves. The urgency to rebuild the finances and the
need to boost healthcare are reasons for the GST rate hike. The GST revenue will also care for the country’s ageing population.
There are several areas that every GST-registered business should work on to prepare for the GST rate increase. They Include:
● Sales, accounting, and invoicing systems
● Price lists
● Sales invoicing formats
● Point of sale systems
● Relevant automation and spreadsheets
● Update price displays (where applicable)
● Terms and conditions
Businesses should give thought to the impact of the GST rate hike on their systems, internal processes, and documentation to ensure a smooth
The Inland Revenue Authority of Singapore (IRAS) encourages businesses to make early preparations for the transition to the 8% rate. For instance, you may have to adjust your invoicing, point of sale system, accounting software, and price displays to accommodate the new change.
Here are critical steps you need to take to prepare for a smooth transition:
Your business’ price displays should reflect the GST-inclusive prices. The displays include price lists, publicity brochures, price tags, and websites. Indicating the new prices on the price displays allows the customers to know what to expect once the changes are implemented.
An excellent way to ensure you have a smooth transition is by displaying two prices:
● Prices that reflect the 7% GST rate before 1 January 2023
● Prices reflecting the 8% GST rate with effect from 1 January 2023
Getting your processes and systems ready to implement the new rate change is essential. You may need to update your invoicing and accounting systems and modify your POS receipt system and cash register.
Your vendor may require you to perform these system modifications using online self-help materials. You may need to reach out to your vendor if there are complex changes.
System change preparations typically take time. Therefore, giving your accounting software vendor enough time to incorporate the new changes
into your systems is essential. Check with your accounting software vendor or your in-house IT team to discover how they can ensure a smooth
transition. Updating your systems early helps ensure your systems comply with price display and invoicing rules.
Get your questions right away by our team of experts. We can help you prepare your business for the GST rate hike in 2023. Book your appointment with us today!
Generally, purchases of products and services made before 1st January 2023 will be subject to the 7% GST rate, while purchases made on or after 1st January 2023 will be subject to the new 8% GST rate.
However, in specific circumstances, there will be special rules governing how GST-registered companies determine the GST rate to charge customers, as follows:
● When a supplier receives full payment for goods and services before 1st January 2023, the payment will be subject to 7% GST, regardless of the date the goods are delivered.
● If you receive both the goods and the invoice before 1st January 2023, the GST will be charged at 7% regardless of when the payment is made.
● When you receive the goods or services and make full payment after midnight on 1st January 2023, the goods or services will be subject to GST at 8% even if you received an invoice before 1st January 2023. Since the initial invoice will have GST at 7%, your supplier will have to issue a credit note to cancel the tax invoice and draft a new one reflecting GST at 8%.
● In cases where partial payments or partial delivery of goods and services is made before 1st January 2023, you may have to refer to the IRAS flow chart determining the rate to charge your customer.
If you have existing agreements and contracts with your customers or suppliers, it’s best to evaluate them and ascertain whether the GST rate hike to 8% in 2023 will affect them. If the contracts are affected, you may have to renegotiate the terms, conditions, and prices to account for the increased GST rate.
GST-registered companies must adequately prepare for the GST rate increase. But what will happen to businesses that fail to comply?
Businesses making supplies that exceed $1 million per year are required to register for Goods and Services Tax. These businesses can recover the tax incurred on their expenses regarding the input tax recovery rules. Conversely, non-GST registered companies can’t recover the GST incurred.
The GST rate increase will come with hefty penalties for non-compliance. This is because penalties are typically imposed on the value of over-claimed or underpaid tax. For instance, the penalty for over-claimed or under-declared tax is 5%.
For this reason, GST-registered enterprises should consider staying on top of their compliance with GST. These businesses should ensure that proper documents are maintained and that the appropriate GST treatment is considered.
Besides, there should be solid GST controls that should be detectable and preventive. This will make it easy for businesses to control GST-related risks since making errors will be more costly after the rate hike.
It is also suitable for businesses to make their compliance process more robust and efficient through automation and technology. There is also the need to seek clarification on the appropriate GST treatment to minimise penalties.
The Goods and Services Tax rate increase in Singapore is near. As mentioned earlier, businesses should make early preparations for a smooth transition. At Precursor, we’re committed to offering the advisory services you need to ensure compliance.
Discover more about how we can help prepare your business for the GST rate hike in Singapore.