What is goods and services tax (GST)
GST is a broad-based consumption tax levied on the import of goods, as well as nearly all supplies of goods and services in Singapore. The only exemptions are for the sales and leases of residential properties and most financial services. Export of goods and international services are zero-rated. In some countries, GST is known as the Value Added Tax (VAT).
How does GST work
GST is a self-assessed tax. Businesses must come forward to register for GST when their turnover exceeds $1mil per year. After registration, businesses must charge and account for GST at the prevailing rate. This is known as output tax. GST registered businesses can also claim the GST incurred on their goods and services purchased assuming certain conditions are met. This is known as input tax.
GST is also levied on the import of goods from overseas. Singapore Customs is responsible for collecting the import GST. The GST incurred on imports can also be claimed as input tax, if the goods are used for business. GST is designed such that the end consumer (be it an individual or a business) pays this tax.
The following examples illustrate the concepts of GST.
Example :
Business A imports raw materials from overseas and uses these materials to make a toy. Business A sells the completed toy to Business B, a local retailer. Thereafter, customer A buys the toy. What is the GST involved?
| |
Business A |
Business B |
End Consumer |
Imports Raw Materials |
Pays GST for imports
Claims GST paid for imports from IRAS. (input tax)
|
NA |
NA |
Sells to B |
Charges GST for sale of toys. (output tax)
Reports and pays GST to IRAS
|
Pays GST to A when purchasing toys.
Claims GST paid to A from IRAS (input tax)
|
NA |
Sells to End Consumer |
NA |
Charges GST for sale of toys. (output tax)
Reports and pays GST to IRAS
|
Pays GST |
The GST incurred for their onward sale of goods for Businesses A and B can be claimed from IRAS (subject to conditions being met). GST incurred for other purchases can also be claimed as input tax, if these purchases were made for the onward sale of goods. For instance, to make the toys, Business A may buy other goods and services locally like paint or packaging materials. Business A would also incur business costs like rental of factory space. Generally, these can be claimed as input tax from IRAS.
Example: (Toy Manufacturing)
Plastic Supplier charges $20 for his goods to the toy manufacturer. The GST is $1.40 (Toy Manufacturer will claim $1.40 from IRAS as input tax). Toy Manufacturer sells the toy to consumer at $30. The GST is $2.10. The consumer will pay the $2.10 GST.
Types of Supplies
For GST purposes, a supply can be a sale of good or services. It is important to understand the following type of supplies.
- Standard-Rated Supplies - this refers to most goods and services which are supplied in Singapore. GST is to be charged at the prevailing rate.
- Zero-Rated Supplies - this refers to goods which are exported or international services.
- Exempt Supplies - this refers to supplies where there is no GST levied. Consequently, the input tax incurred to make these supplies cannot be claimed.
- Out-Of-Scope Supplies - this refers to supplies which are outside the scope of the GST Act. In general, they are:
Examples of supplies at a Glance
| |
Standard-Rated Supplies |
Zero-Rated Supplies |
Exempt Supplies |
Out-Of-Scope Supplies |
Goods |
Most local sales would fall under this category. |
Goods that are exported. |
Sale and rental of unfurnished residential property. |
Goods which are sold but never enter Singapore. |
Services |
Most local provision of services would fall under this category. |
Services that are classified as International Services. |
Financial Services. |
Not applicable |
FAQs
GST was introduced as part of a larger tax restructuring exercise, to enable Singapore to shift its reliance from direct taxes to indirect taxes. GST has also enabled Singapore to sustain a lower income tax rate. Being a tax on consumption, and not income, GST inherently encourages savings and investments.