Starting from 1 January 2023, the Goods and Service Tax (GST) rate has been increased from 7 per cent to 8 per cent, with further plans to increase to 9 per cent starting from 1 January 2024. Businesses of all sizes should not take the GST rate hike lightly and should begin to look closely at the implications of the rate hike on their business and prepare early.
Impact on non-GST registered businesses
The GST incurred on purchases adds an extra cost for most non-GST registered businesses. An elevated GST rate would further increase their expenses. Non-GST registered businesses may opt for voluntary registration to offset these costs. However, this process comes with compliance obligations. Thus, it is crucial to conduct a cost-benefit analysis before deciding on GST registration.
Impact on SMEs
The GST rate hike has led more small and medium-sized enterprises (SMEs) to show more interest in GST registration. SMEs might be motivated to apply for GST registration to cover higher expenses amid increasing business costs. However, despite the growing interest, some SMEs might still be hesitant to apply due to worries over struggling to manage GST compliance after registration.
GST-registered businesses must understand how and when to charge GST, how to collect, and how to meet the filing deadlines for GST. It might be challenging for SMEs to manage these compliance rules. Therefore, SMEs should be aware of all the implications of being a GST-registered business before applying for registration, as non-compliance, such as over-claiming of GST or late payments, could lead to penalties.
Impact on other business sectors
Some GST-registered businesses, such as insurance companies, banks, and residential property developers, cannot fully recover the GST paid on their business activities, resulting in unavoidable and direct impacts on their bottom line.
These companies may request an input tax recovery formula that better reflects the use of resources used to produce their supplies to reduce these irrecoverable GST expenses. This will aid in lowering the amount of GST expenses that are beyond recovery. Furthermore, a GST health check review might help to reveal recurrent problems and possible GST savings opportunities.
Businesses should also determine if any existing GST relief programs can alleviate the impact of the GST hike. For example, the Major Exporter Scheme (MES) and the Import GST Deferment Scheme (IGDS) helps to ease cash flow for businesses importing and exporting goods substantially. Max Lewis provides GST Assisted Self-help Kit (ASK) reviews to help businesses ensure the accuracy of their GST submissions and obtain certification for GST schemes such as the MES and Import GST Deferment Scheme (IGDS). Conducting ASK is compulsory when applying or renewing GST schemes.
Businesses of all sizes should prepare early for the GST rate hike. Non-GST registered businesses and SMEs must carefully consider the implications of the rate hike and understand the compliance rules before registering. Meanwhile, some GST-registered businesses should re-evaluate their input tax recovery formula and take advantage of existing GST relief programs to minimise the impact of the hike.
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