As early as 2018, there were already plans to increase the Goods and Services Tax (GST) rate in Singapore. Finally, in the 2022 Budget Statement given by the Minister of Finance Mr. Lawrence Wong, one of the key points that was highlighted was the two-step hike in the GST rate, from 7% to 8% starting from January 1, 2023, and from 8% to 9% beginning from January 1, 2024.
According to Mr. Lawrence Wong, the reason behind not implementing the rate increase in 2022 and staggering it over two years is that the government recognises the concerns of consumers and businesses that are still grappling with the economic impacts of the COVID-19 pandemic. Singapore’s last experience of a staggered GST rate increase was in 2003 and 2004.
In preparation for the anticipated two-step GST rate hike, this article provides some useful information on how businesses can particularly ready themselves for the first rate change in Singapore’s GST, which will take effect on the first day of the following year.
Application of the Transitional Rules
Once the new GST rate has been implemented, standard-rated goods and services supplies made on or after January 1, 2023 should already be accounted for by businesses at the rate of 8%. To identify when a business’ supply is treated as taking place for GST purposes under normal circumstances, one only needs to refer to the time of supply rules.
However, if your supply straddles the GST rate change, you will need to take into account the transitional rules to determine whether or not the new rate of 8% is already applicable to your GST. The Inland Revenue Authority of Singapore (IRAS) has already issued a guidance on the said transitional rules for supplies mounting the rate change as well as some common business scenarios to expect. Here are some of them:
- If the goods have been delivered and full payment has been received after January 1, 2023, but the invoice for the supply of goods has been issued to the customer even before the said date, the GST should be accounted at the new rate of 8%. This is because the receipt of full payment and delivery of goods took place after the rate change.
- If the services have been completely performed before January 1, 2023, but the full payment and the invoice for the services have been received and issued only after the said date, one can choose to charge and account for GST at the old rate of 7%. This is because, although the receipt of full payment and the issuance of the invoice took place after the GST increase, the services have been fully performed before the rate change.
Take note that GST is chargeable at the existing rate. Hence, if you issue an invoice prior to January 1, 2023, you must charge GST at the rate of 7%. Generally, you cannot charge or reflect GST at the new rate of 8% on invoices issued before the rate increase takes effect. However, if due to the transitional rules, you are obliged to account for GST at 8%, it is necessary to issue a credit note as well as a new tax invoice to your customer to reflect the new GST chargeable.
System Enhancements and Implementation Plan
To prepare for the rate change and apply the transitional rules, businesses, in cooperation with their system vendors and in-house IT team, need to devise an implementation plan to ensure the smooth execution of the changes. This may include modifying your accounting, invoicing, point-of-sale, and other systems.
As the imposition of the rate increase approaches, you can expect your system vendors to be swamped with the same requests from other companies. Hence, it is necessary to reach out to them early. Moreover, it is important to work closely with your in-house IT team and make sure that they prioritise getting your business’ accounting system ready for the upcoming GST rate change.
Updated Price Display
One of the essential things GST-registered businesses should do in preparation for the GST increase is to update their price displays accordingly. They are required to show GST-inclusive prices on all their price displays, including their price lists, price tags, websites, advertisements, and publicity brochures. Quoted prices, whether written or verbal, need to be GST-inclusive because the consumers have the right to know beforehand the final price that they must pay.
Once the old rate ends after midnight of January 1, 2023 and the new rate comes into effect, it would be specifically challenging for businesses to make sure that all their price displays are updated. Hence, if you cannot change your price displays overnight, you may show two prices: those inclusive of the old rate of 7% applicable prior to January 1, 2023, and those inclusive of the new rate of 8% applicable starting from January 1, 2023.
Cost of Non-Compliance
It is necessary for businesses to comply with the rules and requirements set by IRAS as well as to correctly account for GST in their GST returns so as to avoid penalties. This is especially since a higher GST rate ordinarily entails higher penalties for non-compliance because penalties are generally imposed on the value of the underpaid or overclaimed tax. Moreover, aside from an increased quantum of penalties, your GST non-compliance could also result in lower revenues.
Therefore, if your business is GST-registered, it is critical to stay on top of your GST compliance, especially once the rate change has been implemented. To do this, you should take some time to read the e-Tax Guide and the GST Rate Change overview released by IRAS online to familiarise yourself with the new rules and requirements. These materials will provide you with more in-depth information on how you can prepare for the GST rate increase in 2023.
Furthermore, as early as now, you should already put in place adequate, strong, and efficient GST preventive and detective controls to ensure better management of GST risks, as committing GST errors is expected to become even costlier after the GST rate increase begins.
After years of planning and anticipation, the GST rate increase is finally here. Such increase is expected to address the government’s urgent necessity to raise revenue, while acknowledging the need of the consumers and businesses to prepare and cushion the hike’s impact.
With the staggering of the rate increase over two years, hopefully, everyone will have enough preparation to ensure a seamless transition and avoid any penalties for non-compliance. To help you prepare ahead of time and ready your business for the upcoming GST changes, Max Lewis Consultants Pte Ltd is here to give you professional assistance. We have GST assisted self-help kits that will help you ensure compliance and meet all your business’ GST-related needs.
Aside from GST compliance, we also offer a variety of other services designed to optimise your business operations, such as valuation services, transfer pricing services, and local and international tax planning. To help businesses avail of tax deduction benefits, we also provide employee shares option plan in Singapore. Feel free to contact us today if you want to learn more about our reliable services.