Discounts given to customer
When you offer your customers a discount on the selling price of your goods and services, GST is chargeable on the net discounted price.
Example 1: Sales discount
GST to be charged = 9% x $1,800 = $162
Prompt payment discount
Prior to 1 Apr 2020, when you offer a discount for prompt payment to your customers, GST is chargeable on the net price after the prompt payment discount.
This GST treatment applies to all prompt payment discounts regardless of whether your customer takes up and fulfils the payment terms under the prompt payment discount. The treatment does not apply to payments by instalments.
Example 2 (GST treatment prior to 1 Apr 2020)
GST is chargeable on the net price after the prompt payment discount (i.e. 90% of the selling price excluding GST).
GST to be charged = 7% x $90 = $6.30
For this transaction, you should report your value of standard-rated supplies (Box 1) as $100 and your output tax (Box 6) as $6.30.
With effect from 1 Apr 2020, GST will be chargeable and accountable on the discounted price only if your customer takes up and fulfils the payment terms under the prompt payment discount. If your customer does not take up and fulfil the payment terms under the prompt payment discount, you are required to charge and account for GST based on the gross undiscounted amount. The GST treatment of prompt payment discounts is amended to align with the GST principle of value of supply, where GST is charged based on the consideration received.
If your customer satisfies the payment terms under the prompt payment discounts, you are required to issue a credit note to reduce the taxable supplies and GST values charged in your initial tax invoice. Accordingly, you can reduce the output tax previously accounted for in your GST returns. If your customer is GST-registered and has claimed the GST (i.e. based on the gross invoice value) stated in your tax invoice, he is required to reduce his input tax claim accordingly based on the credit note received.
If you have difficulty issuing credit notes, you may write in to the Comptroller for approval to use an alternative method to inform your customer of the reduction in GST charged.