Announced in the Budget 2015, companies that are GST-registered with effect from 1 July 2015 can enjoy a simplified process when claiming GST incurred prior to registration
While there were no major changes for Goods and Services Tax (“GST”) in this year’s Budget 2015, businesses that apply for GST registration on or after 1 July 2015 will be able to benefit from a more simplified process when it comes to applying for GST incurred before the date of registration. This simplification is in line with Singapore’s efforts to enhance the island-state’s pro-business climate and ease the administrative burden for GST-registered companies.
Similar to the concept of Value-Added Tax (“VAT”), GST is a broad-based consumption tax that is levied on the import of goods, as well as goods and services in Singapore. There are however, exemptions on certain services, which include but are not limited to:
- Financial services;
- Sale and lease of unfurnished residential properties;
- Importation and local supply of investment precious metals
- International services; and
- Exported goods
For goods and services that are taxable, the flat rate of 7% GST applies. Hence, for companies that make business purchases and incur expenses that do not fall within the abovementioned scope, they would incur GST on those expenses.
GST and all tax related matters are governed by the Inland Revenue Authority of Singapore (“IRAS”).
How the New Changes will benefit GST-registered companies
Traditionally, GST-registered companies have found that claiming for GST is a relatively tedious and convoluted process, due to the application of different apportionment rules to determine what can be classified as “input” tax. A simple explanation of input and output tax is presented in the example below:
|1. Manufacturer||Pays GST to Singapore Customs for the import of leatherImport value = $100 |
Import GST paid = 7% x $100 = $7 (input tax to claim from IRAS)
|Charges and collects GST for sale of bags to retailerSelling price to retailer = $200 |
GST charged to retailer = 7% x $200 = $14 (output tax payable from IRAS)
|2. Retailer||Pays GST to ManufacturerPurchase value = $200 |
GST paid = 7% x $200 = $14 (input tax to claim from IRAS)
|Charges and collects GST for sale of bags to end-consumerSelling price to retailer = $300 |
GST charged to retailer = 7% x $300 = $21 (output tax payable from IRAS)
|3. End-consumer||Pays GST to RetailerPurchase value = $300 |
GST paid = 7% x $300 = $21End consumer is not GST-registered. Therefore, he cannot claim the GST paid on his purchase from IRAS.
With the changes announced in the Budget 2015, new GST-registered companies will find it easier to claim for GST incurred within the six months before the date of GST registration. This would include:
- Goods held by the company at the point of GST registration; and
- Property rental, utilities and services, which are not directly attributable to any supply made by the company before it became GST-registered
This simplifies the apportionment of GST incurred; and encourages newly incorporated companies to consider registering for GST. Especially for companies that do foresee that their revenue will potentially exceed S$1 million, voluntary registration can provide ease of mind, as the company need not worry about the possibility of unintentionally not complying with the requirement and bearing the painful penalties of doing so. Notably, IRAS even grants cash rewards of up to 15% to informants who report errant companies that do not pay their GST or have falsely charged their customers GST.
When should a business become GST-registered?
In Singapore, business will need to initiate the application to be GST-registered, when they fulfil either of the following conditions:-
- Taxable turnover for the past 12 months is more than S$1 million; or
- The company will be making or intends to make taxable supplies and anticipates that the total taxable turnover in the next 12 months to be more than S$1 million
In addition, companies can voluntarily apply to be a GST-registered business. However, for companies that voluntarily choose to do so, a director of the company would be required to complete two e-learning courses.
Do note that the onus is on the company to monitor when it meets either one of these conditions; and the penalties for failing to do so can be extremely painful for the company. Errant companies can be fined up to S$10,000 and pay a penalty equal to 10% of the tax due from the date on which the business is required to register for GST. This means that the company would be liable for all GST payments since the date it was required to register for GST, even if there was no GST collected from its customers.
One example is a renovation contractor, that was obliged to pay a total of S$504,500.80 in back-dated taxes (comprising S$458,647.09 of GST and an additional 10% fine of S$45,863.71) and an additional penalty of S$4,500, for failing to account for transactions which were subject to GST between 1 December 2006 and 31 December 2010. This was uncovered in the course of one of IRAS’ regular audit programmes, which utilises data analytics tools to corroborate data and detect anomalies.
As part of its audit, IRAS may request for the following information:
- Business information and its activities
- Sales and purchase listings to verify accuracy of the figures reported in GST returns
- Supporting documents for business transactions
- Self-review checklists completed by the company
- Review of the company’s accounting system and how transactions are recorded
In addition, IRAS may request additional confirmation and information from the company’s customers, suppliers and banks. Hence, companies should be aware of the importance of maintaining proper records.
How to Apply for GST Registration
Companies have two options when making the application to be GST-registered, namely voluntary or compulsory registration. Companies that opt for voluntary registration should anticipate a longer waiting time before their application is approved. As explained in the section above, one director of companies choosing to voluntarily register will have to complete two e-Learning courses, namely:-
- “GST Before I Register” and its accompanying quiz before registration; and
- “Introduction to GST” within three months from the effective date of registration
Companies would then submit their application electronically via IRAS’ electronic portal known as myTaxPortal, or by paper submission. Generally, applications made electronically are processed faster as compared to the traditional paper route.
As part of the application, companies will also be required to complete the GST form, as well as provide supporting documentation. Information required in the GST form and supporting documentation would include, but are not limited to:-
- Company’s name and registration number;
- Business Activities of the company;
- Basis for registration;
- Taxable Turnover (Previous 12 months and anticipated turnover for the next 12 months);
- Financial Year End
- Issued and Paid-Up capital
- Size of the company;
- How the company intends to prepare its GST returns
For companies and their employees who are new to the process, it may be prudent to engage a tax specialist who is well versed in the application, to avoid spending too much time and effort on applying to be GST-registered.
Why Companies Should Educate their Employees about GST
Given the severity of non-compliance, companies should educate their employees as well, to avoid damage to their business reputation and disruption to business operations due to the ignorance of their employees about the potential impacts of their actions.
One example is an ex-jewellery shop employee who assisted two Indian nationals to claim for GST refunds that they were not entitled for. He was eventually charged for evading GST amounting to S$9,056.53; and fined an additional penalty of $724 for his corruption by accepting payment in the form of DOM liquors and cash. The court sentenced him to 2 years’ jail and had to pay S$27,169.69 for his GST offences, which is three times the amount of GST defrauded.
Understandably, there may be instances where the company or its employees may have made mistakes. If the company does discover such mistakes, it should err on the side of caution and inform IRAS accordingly, which, depending on how long ago the return was filed, will usually mean a reduced penalty for the company, as shown in the table below.
|Type of Voluntary Disclosure||Penalty Treatment|
|Voluntary disclosure made within the grace period of one year from statutory filing deadline, and the qualifying conditions are met||No penalty imposed|
|Voluntary disclosure made after the grace period and qualifying are met||Reduced penalty of :5% of the income tax undercharged or of the amount of cash payout / bonus exceeding entitlement obtained, for each year the error was late in being rectifiedFlat 5% of the GST underchargedFlat 5% of the outstanding Withholding Tax|
|Voluntary disclosure for late stamping or underpayment of Stamp Duty and the qualifying conditions are met||Reduced penalty of :5% per annum computed on a daily basis on the Stamp Duty payableNo grace period for Stamp Duty|
Especially for companies that may have inexperienced employees or have recently experienced a change in their tax and accounting department, it may be wise to seek an external tax specialist to assist the company in reviewing its tax returns and other records.
Despite the fact that there were no new GST schemes announced as part of the Budget 2015, companies can still continue to benefit from the existing GST schemes in place, which a good tax specialist would be able to advise the company on. In most instances, only companies that are GST-registered would be able to qualify for these schemes.
A snapshot of the current GST schemes available is in the table below:-
|Cash Accounting Scheme||Companies can account for output tax upon receipt of payment from customers and input tax is claimed only upon payment to suppliers|
|Discounted Sale Price Scheme||GST charged on 50% of the sale price of a second-hand or used vehicle|
|Gross Margin Scheme||GST is accounted for on the gross margin, instead of the full value of the goods supplied. This is beneficial for second-hand dealers who purchased goods free of GST|
|Hand-Carried Exports Scheme||Companies can zero-rate their supplies to overseas customers for goods hand-carried out of Singapore via Changi International Airport only.|
|Import GST Deferment Scheme||Approved GST-registered businesses can defer their import GST payments until their monthly GST returns are due, as long as they file their GST returns on a monthly basis.|
|Major Exporter Scheme||Companies are allowed to enjoy GST suspension when importing non-dutiable goods at the point of import and zero GST warehouses|
|Tourist Refund Scheme||Companies that are in the Tourist Refund Scheme (“TRS”) can grant tourists GST refunds|
|Zero GST Warehouse Scheme||Import GST on non-dutiable overseas goods is temporarily suspended, until the imported goods leave the warehouse and enter the local market.|
In a nutshell, Singapore’s tax regime is generally extremely business friendly, especially when compared to its peers across the globe. With the new changes, this streamlines the process for newly registered GST companies and may potentially result in more savings for GST-registered businesses.