In Budget 2022, Singapore’s Minister of Finance, Mr Lawrence Wong, announced that the rate for the Goods and Services Tax (GST) will increase in a two-step approach – from 7% to 8% starting January 1, 2023, and from 8% to 9% beginning January 1, 2024. This two-step GST rate hike prompts GST-registered businesses to plan ahead to manage the two rounds of costs and efforts in implementing the rate change.
To help GST-registered businesses become more prepared for the first rate hike on January 2023, the Inland Revenue Authority of Singapore (IRAS) released an e-Tax Guide in February 2022 to explain the transitional time of supply rules that apply to transactions covering the first rate change. Read on to learn more about these transitional rules and their application to varying transactions.
Understanding the Transitional Time of Supply Rules
Generally, the Time of Supply (TOS) for most supplies, including imported services under the Overseas Vendor Registration (OVR) regime, will be the earlier of the date an invoice is issued or the date payment is received. The GST for most transactions needs to be charged at the prevailing rate per the TOS rule. So, if the TOS is set off before January 1, 2023, the supplier must charge 7% GST. On the other hand, if the TOS is set off on or after the said date, the supplier should already charge 8% GST.
However, under the GST transitional rules for transactions that span the rate change, the delivery time of products or services (also called the Basic Tax Point) will have to be considered alongside the general TOS rules. The critical factors in identifying the applicable GST rate are the Basic Tax Point and the date of the payment receipt.
The GST transitional rules are the rules that should be applied when supplies straddle the date of the rate change. This may ultimately impact the chargeable GST rate. A supply straddles the date of the GST rate hike when either of the following scenarios takes place, either fully or partially, on or after January 1, 2023:
- Invoice issuance
- Payment receipt
- Delivery of products or performance of services
Application of the Transitional Rules to Invoices Issued On or After GST Rate Change
1. Full payment received before the rate change
If an invoice has been issued for your supply on or after January 1, 2023, and you receive full payment before the said date, your supply is subject to a GST rate of 7%. This is true whether the products have been delivered or the services have been performed before the rate change, on or after the rate change, and even partly before and partly on or after the range change.
2. Full payment received on or after the rate change
If an invoice has been issued for your supply on or after January 1, 2023, and you receive full payment on or after the said date, you can apply 7% GST on your supply if the products have been delivered or the services have been performed before the rate change.
This is also true even if there is only partial delivery of products or performance of services before January 1, 2023. In such a case, the remaining value of the supply is already subject to the GST rate of 8%. However, for those products delivered or services performed on or after the rate change, the 7% GST is no longer applicable.
3. Partial payment received before and on or after the rate change
Suppose an invoice has been issued for your supply on or after January 1, 2023, and you receive partial payments before, on, or after the said date. In that case, you can apply 7% GST on your supply if the products have been delivered or the services have been performed before the rate change.
The 7% GST is also applicable on the higher payment received before the rate change, or the value of the products delivered or services performed before the same if the product delivery or service performance has been made partially before the rate change and partially on or after it. The remaining supply value is then subject to the GST rate of 8%. For products delivered or services performed on or after the rate change, they can no longer be subject to the 7% GST.
Application of the Transitional Rules to Invoices Issued Before GST Rate Change
1. Full payment received before the rate change
Suppose an invoice has been issued for your supply before January 1, 2023, and you receive full payment before the said date. In that case, your supply is still subject to the 7% GST rate, regardless of whether the products have been delivered or the services have been performed before the rate change, on or after the rate change, or partially before the rate change and partially on or after it. In this situation, an adjustment of the GST rate is not required.
2. Full payment received on or after the rate change
If an invoice has been issued for your supply before January 1, 2023, and you receive full payment on or after the said date, your supply is still subject to 7% GST if the products have been delivered or the services have been performed before the rate change.
On the other hand, an adjustment of the GST rate is required if the products have been delivered or the services have been performed on or after January 1, 2023. The 8% GST rate applies to the full value of the supply here. Similarly, suppose the product delivery or service performance has been made partially before the rate change and partially on or after it, the value of the products or services partially delivered or performed on or after January 1. In that case, 2023 is subject to 8% GST, while the remaining value is subject to the 7% rate.
3. Partial payment received before and on or after the rate change
Suppose an invoice has been issued for your supply before January 1, 2023, and you receive partial payments before, on, or after the said date. In that case, you can still apply 7% GST on your supply if the products have been delivered or the services have been performed before the rate change date.
Meanwhile, suppose the product delivery or service performance has been made on or after January 1, 2023. In that case, the value of the partial payment received on or after the said date is already subject to the GST rate of 8%. The same is true if the products have been delivered or the services have been performed partially before and partially on or after the rate change. In this case, the lower value of either the partial payment received or the partial products delivered or services performed on or after the rate change is subject to 8% GST, while the remaining value is still subject to 7% GST.
Conclusion
Overall, this article has provided a quick overview of the GST rate increase from 7% to 8% that will take effect on January 1, 2023. The scenarios mentioned here are only the basic scenarios expected to occur when the GST rate change is already implemented.
However, there may also be more complex situations, and their guiding principles are more thoroughly explained in the IRAS e-Tax Guide on the 2023 GST Rate Change. To be more familiar and guided when it comes to the ins and outs of the GST, it is highly recommended that you avail of Max Lewis’ trusted GST-Assisted Self Help Kit (ASK).
Besides GST ASKs, Max Lewis offers a wide range of other reliable and valuable corporate services, spanning from local and international tax planning and business valuation to transfer pricing and employee shares option services in Singapore. Through our top-notch services, you can ensure that your business transactions will remain stable and efficient, no matter what changes will occur in the market. To find out more about our excellent offers, feel free to contact us anytime.
*The above represent our views and opinions and does not necessarily reflect the position of any entities mentioned.