18 Jan 2010
I refer to Mr Tan Kin Lian's letter 'GST Exemption - Benefit or penalty?' (TODAY, 5 Jan 2010).
2. GST is collected at all stages of the business supply chain. A GST-registered business charges and collects GST on its sales, but is able to claim a refund of the GST it incurs on its purchases from other GST-registered businesses. It is unable to claim a refund on purchases from a non-GST registered business as the non-GST registered business does not charge GST on its sales. Mr Tan's suggestion that non-GST-registered businesses be allowed to claim refunds on the GST they incur on purchases will result in the Government reimbursing GST that is not collected from their sales in the first place.
3. Singapore has deliberately set a high registration exemption threshold of $1million so that small businesses would not need to incur the business and compliance costs of collecting and accounting for GST to the Government. As non-GST registered businesses do not charge GST on their own value-add, they enjoy a pricing advantage over GST registered businesses on sales to domestic consumers, or to other non-GST registered customers. However, they would also be at a disadvantage when it comes to exports (as their products cannot be zero-rated), or sales to GST-registered customers (who cannot claim input GST for purchases from non GST-registered businesses).
4. Small businesses therefore have to make a business decision on whether to register for GST voluntarily to allow their customers to claim GST refund on their purchases. The Government helps to facilitate any small business that wishes to do so. For example, small businesses are given subsidy by IRAS and IDA to purchase any of the accounting software listed in IRAS' Accounting Software Register. Please refer to GST > IRAS' Accounting Software Register for details.
5. We also wish to clarify that businesses do not have to maintain separate sets of records purely for GST purposes. The same set of records for financial and income tax reporting can be simply adapted for GST accounting purposes.
6. We are sorry that Mr Tan did not receive a more prompt confirmation of his registration for a GST seminar that he had expected. Mr Tan signed up for a GST seminar on 21 Dec 09 and IRAS had replied via email on 4 Jan 2010 to confirm his registration for the seminar on 4 Feb 2010. He may contact Ms Suzanne Seah on 6351 2506 should he need any clarification.
7. We thank Mr Tan for his feedback.
Director (Corporate Communications)
Inland Revenue Authority of Singapore