In 2023, businesses operating in Singapore will experience a major change because of the GST hike. In 2022, the Minister of Finance announced in Singapore Budget that GST would gradually increase, and this tax increase will affect small businesses.
However, with the proper planning for the GST rate hike, you can help your business ease off the impact of the GST hike. In this blog, we will walk you through comprehensive details about GST Hike in Singapore in 2023.
What is GST?
GST (Goods & Services Tax) is a value-added consumption tax. It is levied on imported goods and supplies of goods & services. In other countries, GST is known as VAT (Value-Added Tax).
All organizations must submit GST returns monthly (monthly in Singapore) with their Personal GST Registration number. The GST return shall be detailed, containing all taxable supplies & inputs.
How much will be the hike in GST rate? When does the GST Rate Hike take effect?
There will be an increase from 7% to 8% in GST Rate in 2023, effective from January 1, 2023, to December 31, 2023, by the Singapore Government. This rate will increase to 9% from January 1, 2024. This gradual 1% hike is done to allow businesses to prepare for this rate increase.
All invoices issued before January 1, 2023, should include 7% GST on goods & services, 8% from January 1, 2023, to December 31, 2023, and 9% from January 1, 2024.
Why is Singapore Government increasing the GST rate?
Singapore Government’s annual expenditure primarily comprises social spending, especially for the healthcare sector. From 2009 to 2019, Singapore Government’s yearly spending jumped from S$33 billion to S$75 billion, in which spending on the healthcare sector increased from S$2.2 billion to S$11.3 billion.
As Singapore faces an aging population, the projected spending on the healthcare sector is expected to add up to 3.5% of the GDP. By 2030, nearly 1/4th of Singapore’s population is expected to be 65 years old & above.
The Singapore Government is expected to build more healthcare facilities and offer medicines on subsidies for older people to reduce further healthcare costs.
How will Singapore Government help?
Singapore Government is trying to minimize the GST hike impact with the GST Assurance Package, which was announced in 2019. This package was under the 2020 budget to aid low & middle-income earners in easing off the challenges of the GST hike.
Under this S$6 Billion Package, all Singaporean adults are entitled to receive between S$700 to S$1600 depending on their income earning power. This package amount will be dispersed over five years, from 2022 to 2026, in cash payments, from which 1st pay-out was made in December 2022. Singapore Government has increased the package amount by S$640 million.
GST Hike Impact on GST-Registered Businesses
GST-Registered Businesses will be charged at an 8% GST rate for any supply of goods or services made on or after January 1, 2023.
Any invoice issued on or after January 1, 2023, will be at an 8% GST rate. E.g., if an invoice was issued on December 30, 2022, but fulfilled/delivered in January 2023, it will be at an 8% GST rate. And it will have to be reversed via credit notes.
We recommend the following tips to prepare for the GST hike:
- Update cash register & receipting system for incorporating new GST rate for POS Billing.
- Comply with price display requirements.
- Train staff on the transitional rules of 8% to apply the correct GST rate for all sales transactions & reverse charge supplies across the date of the rate change.
- Review all contracts & agreements for the GST rate to be borne or charged by each party.
- Inform all your customers about the GST hike.
- Apply for the Major Exporter Scheme if your business deals with imports & exports.
Cost of GST Non-Compliance
An increase in the GST rate means an increase in non-compliance penalties. The reason is that GST Non-Compliance Penalties are imposed on the value of the underpaid or over-claimed tax, E.g., if there is a 5% late payment penalty for a tax that is underpaid or over-claimed.
Apart from the higher penalties, the business revenue might also be affected due to GST Non-Compliance.
Should Non-GST Registered Businesses apply for Voluntary GST Registration?
Non-GST Registered Businesses might face a GST rate hike in the cost of goods & services bought from GST-Registered Businesses (Suppliers) due to GST rate hike.
Non-GST Registered Businesses should apply for a Voluntary GST Registration to recover GST incurred expenses to mitigate the rising costs due to the GST hike.
Businesses applying for Voluntary GST Registration must stay registered for two years. The following are the considerations before applying for Voluntary GST Registration:
- Your supplier & customer profile
- Types of sales made by your business
- Responsibilities of being a GST-Registered Business
Note: If you decide to register your Non-GST Registered Business before January 1, 2024, there will be additional GST Compliance costs. You need to consider these GST Compliance costs due to the GST hike, or it is wiser to remain Non-GST Registered Business or defer your Voluntary GST Registration until January 1, 2024, or after this date.
After reading the blog, you will have comprehensive information regarding GST Rate change and its impact on GST & Non-GST Registered Businesses.
For more information, visit the official Inland Revenue Authority of Singapore (IRAS) website or contact Bestar Services.
Bestar Services is one of the top Business Advisory Service providers in Singapore. We provide comprehensive business services, including GST Registration Services. Contact us for a consultation at +65 62994730 and email firstname.lastname@example.org