What is GST?
Goods and Services Tax (GST), also known as Value Added Tax (VAT) in many other countries, is a consumption tax paid on the supply of commodities and services in Singapore and the import of goods into Singapore.
GST is an indirect tax that is applied to the selling price of products and services delivered by GST-registered business entities in Singapore. It is now 8% and will be raised to 9% in January 2024.
How does GST work?
For example, if you charge a customer in Singapore S$100 for your services, you must invoice your customer S$107 (S$100 for your service + 7% GST). This invoiced GST amount obtained from the client on behalf of the tax authorities must then be paid to the Singapore tax department quarterly via GST tax filing.
Why do we need GST?
It is viewed as a mechanism to reduce personal and corporate income tax rates while also providing a consistent cash flow to the Singapore government regardless of the status of the economy. Furthermore, because this is a consumption tax rather than an income tax, it is regarded as more equitable. It encourages individuals to save and invest in fostering a more stable economy.
The GST rise funds government spending that benefits Singaporeans, by allocating the funds to improving healthcare, education, and security. These funds can be used to not only improve the infrastructure required in these fields, but also hire capable professionals, employ better technological solutions, and put in place more efficient processes.
Ultimately, raising the GST is required to meet our country’s growing demands.
In addition, the GST Voucher scheme assists lower and middle-income Singaporeans in offsetting a portion of their GST expenditures.
Should I register my company for GST?
Singapore-incorporated businesses are not automatically registered to levy GST. Companies that meet specific qualifications must apply to IRAS to become GST-registered before they may charge and collect GST.
You have to register your company for GST when;
- Your company’s annual revenue exceeds S$1 million. This is known as the retrospective basis.
- You are currently generating revenue and can predict that annual revenue will exceed S$1 million within the next 12 months. This is known as the prospective basis. Included in this are any contracts or agreements you have made in which your anticipated annual revenue exceeds S$1 million.
You have 30 days to submit the GST application to IRAS once your income exceeds S$1 million. Penalties will apply if your company isn’t registered with IRAS within the allotted time frame.
Advantages and Disadvantages of GST in Singapore:
Advantages
- It delivers reliable and predictable tax revenue in both good and bad economic times.
- It enables the government to reduce business and personal income taxes, encouraging greater foreign direct investment. This contributes to overall economic growth.
- GST is a more equitable tax system. It only taxes self-employed people and wage earners when they spend their money.
Disadvantages:
- One must either understand the complexities of GST or employ an accountant to do this task, which may be rather expensive in some situations.
- GST registration essentially raises your selling price by 8%. Your non-GST registered consumers would be unable to recoup the GST you charge. So, while your costs are lower because you can reclaim GST, your clients may not be too happy about this.
- GST may be a hardship for lower-income individuals, particularly during periods of inflation when the 8% tax is paid on rising prices of everyday necessities.
