Increase of GST rate
In Budget 2022, the Minister for Finance announced that the GST rate will be increased from:
(i) 7% to 8% with effect from 1 Jan 2023; and
The revenue from the increase in GST will go towards supporting our healthcare expenditure, and to take care of our seniors.
Effect on GST-registered businesses – what you need to do
The rate change affects any GST-registered business that sells or purchases goods or services that are subject to the standard rate of GST.
First rate change from 7% to 8%
If you are a GST-registered business that is subject to reverse charge (“RC business”), you must account for GST at 8% on the services you procure from overseas suppliers (“imported services”) on or after 1 Jan 2023.
However, there are special transitional rules for supplies that span the change of rate. This may affect the GST rate chargeable on the supply.
You may refer to the e-Tax Guide 2023 GST Rate Change: A Guide for GST-registered Businesses (PDF, 663KB) for more information on rate change.
Preparing for the GST rate change
You are strongly encouraged to prepare early for a smooth transition to the new GST rate. For example, you may need to modify your point-of-sale, invoicing, accounting and other systems, as well as your price displays to reflect the new rate.
As a guide, please refer to the Checklist for GST rate change preparation on the changes that may be required to your systems and business processes to apply the new rate.
Where you are required to charge GST at 8% on the supply on/after 1 Jan 2023, you must account for GST at 8% in your GST return. This is regardless of whether you have collected the GST payment from your customers.
In instances where you have only collected GST at 7% on your supply of goods or services on/after 1 Jan 2023 (such as where you are unable to update your systems in time), you will nonetheless be required to account for GST on the supply at 8% in your GST return. You may do so by computing the output tax payable using the tax fraction of 8/108 on the total payment received for the supply.
The failure to account for GST on your supplies at the correct rate may attract penalties. Being prepared for GST rate change will help you avoid such increases to your business and compliance costs.
Second rate change from 8% to 9%
Effect on non-GST registered business– should you apply for voluntary GST registration?
For non-GST registered businesses, there may be an increase in the cost of goods and services purchased from GST-registered suppliers after the increase in GST rate.
To mitigate the increased business costs arising from the GST rate increase, non-GST registered businesses may wish to apply for GST registration voluntarily so that they may recover the GST incurred on expenses. As voluntarily registered businesses must remain registered for 2 years, businesses should carefully weigh the pros and cons and consider these factors before deciding to apply for GST registration.
Non-GST registered businesses should also bear in mind the additional compliance costs relating to GST rate change if they decide to register before 1 Jan 2024. If the business is unable to bear the additional compliance costs arising from rate change, it should remain non-GST registered or defer its GST registration until on or after 1 Jan 2024.
The following video covers the relevant information on GST registration to help non-GST registered businesses decide whether to register for GST voluntarily in view of the GST rate increase: