Businesses with an annual taxable turnover exceeding $1 million must register for GST under compulsory registration. With the GST increase from 5% to 7%, non-GST registered businesses with an annual turnover of less than $1 million, may want to register for GST on a voluntary basis.
Do consider the following factors when planning to register for GST on a voluntary basis:
1. Keeping Proper Records for up to 7 years
From 1 January 2007, you are required to keep for 5 years, records (i.e. tax invoices, receipts, credit notes and import permits) pertaining to prescribed accounting periods ending on or after 1 January 2007. However, you are required to keep for 7 years, records pertaining to prescribed accounting periods ending before 1 January 2007.
2. e-Filing of GST Returns
You need to e-File your GST returns on time to avoid penalties. GST returns are filed monthly, quarterly or half-yearly.
3. Training of Employees
You need to train your staff to ensure they are able to perform the charging and accounting of GST correctly for your business transactions.
4. Payment to IRAS / Refund from IRAS
When GST paid exceeds GST collected, the difference can be claimed from IRAS as a GST refund. When GST collected exceeds GST paid, you have to pay the difference to IRAS.
5. Modifying of Accounting System
You may need to modify your accounting system so that the system reflects and applies the correct GST rate for your business transactions.
6. Changing of Price Displays
You need to display GST-inclusive prices. You may need to change your price displays to include the GST.
7. Company’s Pricing Decision or Policy
Whether you intend to pass on the cost of the GST or maintain your price competitiveness by absorbing the GST is a business decision that you have to make. You have to assess the impact on your business costs.
8. Analysis of Your Customers’ Profile
If the majority of your customers are GST-registered, they will be able to claim the GST that you charge them. If your customers are not GST-registered, they will not be able to claim the GST that you charge them.
9. Analysis of Your Suppliers’ Profile
If the majority of your suppliers are non-GST registered, you will not be able to make any claims since they do not charge any GST for the sales made to you. However, if you purchase from GST-registered suppliers or import goods, you will be able to claim the GST paid as your input tax if you are GST-registered.
10. Analysis of Your Supplies
If you export most of your goods or provide services to overseas customers, your supplies are likely to be zero-rated supplies. You may benefit from registering for GST as the GST that you incur on your purchases is claimable. If the GST you pay exceed the GST that you collect, you may claim the difference as a refund from IRAS.
Examples
The following examples show how some of the above factors may affect your decision to register for GST.
Example 1: You need not register for GST in order to lower your business cost.
Company A is not GST-registered and has no intention to register for GST.
Company B is not GST-registered and intends to register for GST voluntarily.
Both companies maintain their sales price ($200) and absorb any GST to maintain price competitiveness.
| |
Company A |
|
Company B |
|
| |
Then |
Now |
Then |
Now |
| |
Non-GST Registered |
Non-GST Registered |
Non-GST Registered |
GST-Registered |
| GST rate |
5% |
7% |
5% |
7% |
| Purchase Price (GST inclusive) |
$105 |
$107 |
$105 |
$107 |
| GST paid on Purchases |
$5
(5/105 x $105) |
$7
(7/107 x $107) |
$5
(5/105 x $105) |
$7
(7/107 x $107) |
Input Tax claimable
(i.e. GST paid on business purchases and importation of goods,
which is claimable by GST-registered person) |
$0 |
$0 |
$0 |
$7
(7/107 x $107) |
| Sales Price (inclusive of GST if GST-registered) |
$200 |
$200 |
$200 |
$200 |
Output Tax on Sales
(i.e. GST charged on a local supply of goods and services,
which is to be accounted by GST-registered person) |
$0 |
$0 |
$0 |
$13.08
(7/107 x $200) |
| GST payable to IRAS |
$0 |
$0 |
$0 |
$6.08
($13.08 - $7) |
| Gross Profit |
$95
($200 - $105) |
$93
($200 - $107) |
$95
($200 - $105) |
$86.92
($200 - $107 - $6.08) |
When GST is raised to 7%, company A will have a higher gross profit vis-a-vis company B ($93 vs $86.92). This is because company B (now GST-registered) has to account for GST ($6.08), while company A (non-GST registered) is not required to do so. This example shows that the GST amount will reduce the gross profit of GST-registered firms if they maintain their prices.
Example 2: If you export your goods and services and you import your raw materials or purchase them from GST-registered suppliers, you will benefit from being GST-registered.
Company A is not GST-registered and has no intention to register for GST.
Company B is not GST-registered and intends to register for GST voluntarily.
Both companies sell their products overseas.
Both companies maintain their sales price ($200) and absorb the GST incurred to maintain price competitiveness.
| |
Company A |
|
Company B |
|
| |
Then |
Now |
Then |
Now |
| |
Non-GST Registered |
Non-GST Registered |
Non-GST Registered |
GST-Registered |
| GST rate |
5% |
7% |
5% |
7% |
| Purchase Price (GST inclusive) |
$105 |
$107 |
$105 |
$107 |
| GST paid on Purchases |
$5
(5/105 x $105) |
$7
(7/107 x $107) |
$5
(5/105 x $105) |
$7
(7/107 x $107) |
Input Tax claimable
(i.e. GST paid on business purchases and importation of goods,
which is claimable by GST-registered person) |
$0 |
$0 |
$0 |
$7
(7/107 x $107) |
| Sales Price (inclusive of GST if GST-registered) |
$200 |
$200 |
$200 |
$200 |
Output Tax on Sales
(i.e. GST charged on a supply of goods and services
that qualify as zero-rated supply e.g. export of goods) |
$0 |
$0 |
$0 |
$0
(0% x $200) |
| GST payable / (refundable) |
$0 |
$0 |
$0 |
($7) |
| Gross Profit |
$95
($200 - $105) |
$93
($200 - $107) |
$95
($200 - $105) |
$100
($200 - $107 + $7) |
When GST is raised to 7%, company B will have a higher gross profit vis-a-vis company A ($100 vs $93). This is because company B (GST-registered) can charge GST at 0% on goods exported out of Singapore and claim the GST incurred on their purchases.
Example 3: You may wish to register for GST if most of your customers are GST-registered.
Company A is not GST-registered and has no intention to register for GST.
Company B is registered for GST voluntarily.
Both companies' customers are all GST-registered. Both companies have the same price on their goods.
| |
Company A |
Company A’s Customer |
Company B |
Company B’s Customer |
| |
Non-GST Registered |
GST-Registered |
GST-Registered |
GST-Registered |
| GST rate |
7% |
7% |
7% |
7% |
| Purchase Price of goods (inclusive of GST, where applicable) |
|
$214 |
|
$214 |
| GST paid on Purchases |
|
$0 |
|
$14
(7/107 x $214) |
Input Tax claimable
(i.e. GST paid on business purchases and importation of goods,
which is claimable by GST-registered person) |
|
$0 |
|
$14
(7/107 x $214) |
| Sales Price of goods (inclusive of GST, where applicable) |
$214 |
$321 |
$214 |
$321 |
Output Tax on Sales
(i.e. GST charged on a local supply of goods and services,
which is to be accounted by GST-registered person) |
|
$21
(7/107 x $321) |
$14
(7/107 x $214) |
$21
(7/107 x $321) |
| GST payable |
|
$21
($21 - $0) |
|
$7
($21 - $14) |
| Gross profit of customer |
|
$86
($321 - $214 - $21) |
|
$100
($321 - $214 - $7) |
GST-registered firms can claim the GST incurred on their purchases as their input tax. However, as company A is not GST-registered and does not charge GST, company A’s customer has no input tax to claim on the purchases from company A. Company A’s customer may have a lower gross profit vis-à-vis company B’s customer.
Example 4: If the majority of your suppliers are non-GST registered, you may not be better off by registering for GST voluntarily.
Company A is not GST-registered and has no intention to register for GST.
Company B is registered for GST voluntarily.
Both companies' suppliers are not GST-registered. Both company A and B pay the same amount for purchases and sell their goods at the same price.
| |
Company A’s Supplier |
Company A |
Company B’s Supplier |
Company B |
| |
Non-GST Registered |
Non-GST Registered |
Non-GST Registered |
GST-Registered |
| GST rate |
7% |
7% |
7% |
7% |
| Purchase Price of goods (inclusive of GST, where applicable) |
|
$207 |
|
$207 |
GST paid on Purchases and Input Tax claimable
(Input tax is GST paid on business purchases and importation of goods,
which is claimable by GST-registered person) |
|
$0 |
|
$0 |
| Sales Price of goods (inclusive of GST, where applicable) |
$207 |
$300 |
$207 |
$300 |
Output Tax on Sales
(i.e. GST charged on a local supply of goods and services,
which is to be accounted by GST-registered person) |
|
$0 |
|
$19.63
(7/107 x $300) |
| GST payable |
|
$0 |
|
$19.63
($19.63 - $0) |
| Gross profit |
|
$93
($300 - $207) |
|
$73.37
($300 - $207 - $19.63) |
When GST is increased to 7% and company A and B choose to maintain their product price at $300, company B will have lower gross profit vis-a-vis company A ($73.37 vs $93). This is because GST-registered firms, such as company B, do not have any input tax to claim since their non-GST registered suppliers do not charge GST on their sales. However, company B, being GST-registered, has to charge GST on its sales to its customers.