Singapore’s Finance Minister stated in his Budget 2022 speech that Singapore’s Goods and Services Tax (GST) rate would be raised from 7% to 8% on January 1, 2023, and from 8% to 9% on January 1, 2024.
Businesses and consumers need to consider the hidden consequences of GST changes, even though they will help to keep public finances from falling in some ways. Here are some of the critical aspects of the GST rate hike that businesses and consumers should note.
Growing importance of GST
Considering that the GST rate is expected to rise to 8 per cent from 1 Jan 2023 and 9 per cent from 1 January 2024, the GST could become the government’s second-largest tax contributor after corporate income taxes. Considering the GST system’s overall tax design and recent developments to bring more imported goods and services under the GST, its contribution will only grow over time.
Therefore, we can expect the tax authorities to heighten their scrutiny of GST compliance in the future.
Impact on GST-registered businesses
As GST-registered businesses begin to prepare for the rate hike, here are some possible crucial areas that businesses should address:
- Assuring employees are aware of GST’s impact by equipping them with relevant knowledge.
- Assessing the possibility of applying for special GST schemes to manage business cash flow
- Incorporating the new GST rates into the online website pricing and cash register system
- Updating the pricing schedules made available to the public
- Implementing the new GST rates in the financial accounting system and invoicing system
Due to some of the changes in accounting systems, it is crucial to hire IT professionals or bring in your IT department to update the system logic. As a result of contractual changes, legal costs may also be incurred to update agreements and clauses in documents.
Certain businesses may be unable to recover GST costs due to the GST rate increases.
Impact on non-GST registered businesses
GST incurred on purchases is an additional expense for most non-GST registered businesses. As a result of an increased GST rate, business expenses would increase.
To recover GST on purchases, businesses that aren’t GST-registered may submit a voluntary application for registration. Although GST registration would help mitigate the increased GST rate, it also involves compliance burdens. Before making any decision, a careful cost-benefit analysis should be conducted.
Impact on consumers
As a result of the GST rate change, local purchases made from GST-registered suppliers will cost more for consumers and businesses not registered for GST. To ease the impact on consumers, the government has staggered the increases, and businesses will be pressured to pass on only justified increases.
The government has extended a GST voucher scheme to help offset GST costs for consumers. In addition, the Committee Against Profiteering has been formed to monitor excessive price hikes. It is also possible to minimize the impact of the GST increase by timing significant purchases so that goods and services can be obtained at pre-GST prices.
Both businesses and consumers need to take note of the essential aspects of the GST rate hike as the end of the year approaches. Hopefully, businesses and consumers alike will have enough preparation for the transition and avoid any non-compliance penalties.
At Max Lewis, we provide a wide variety of reliable corporate services, including asset valuation, local and international tax planning, employee shares option services, and transfer pricing services in Singapore. With the help of our efficient and expert services, you can surely achieve the results you expect and desire from all your transactions. Do not hesitate to contact us anytime to learn more about our services.
*The above represents our views and opinions and does not necessarily reflect the position of any entities mentioned.