Calculating GST on the Supply
It is common for businesses in the hotel or food and beverage industry to impose a service charge (usually at 10%) on their goods and services provided. The service charge is subject to GST as it is part of the price payable for the goods and services provided.
The GST chargeable should be calculated based on the total price payable (inclusive of service charge).
Example 1: Calculating GST on the Supply
|Food & Beverage||$100.00|
|10% Service Charge||$ 10.00|
|8% GST (on $110.00)||$ 8.80|
|Total Price With GST||$118.80|
The GST amount to be shown on the tax invoice or receipt may be rounded off to the nearest whole cent (i.e. two decimal places).
With the discontinuation of the issuing of one cent coins, some businesses have rounded their bills to the nearest five cents to facilitate cash payment by their customers. Whether a bill should be rounded up or rounded down to the nearest five cents is a business decision.
Good and Services Not Subject to Service Charge
As a GST-registered person, you must show GST-inclusive prices on all price displays, advertisements or publicity brochures to the public. Prices that are quoted verbally must also be GST-inclusive.
If you choose to display both GST-inclusive and GST-exclusive prices, the GST-inclusive price must be at least as prominent as the GST-exclusive price. These requirements are to ensure that the members of the public know upfront the final price of goods and services that they have to pay. Failure to comply with each of these requirements is an offence that can result in a fine of up to $5,000.
Good and Services Subject to Service Charge
An exception is granted to hotels and food & beverage (F&B) establishments that impose service charge on their goods and services. They may display GST-exclusive prices for goods and services that are subject to service charge to ease their operations. Otherwise, they may have to display separate price lists for dine-in and take-away items, or to re-compute prices whenever the establishment reduces or waives the service charge. However, they must still display a prominent statement informing customers that prices displayed are subject to GST and service charge.
Please note that the exception does not apply to hotels and F&B establishments that do not impose a service charge. It is also not applicable to F&B establishments that levy a nominal service charge without genuine business reasons other than to avoid displaying GST-inclusive prices. Such businesses are still required to display GST-inclusive prices. Those who do not comply with the price display requirement could be subject to a fine.
Dine-In and Takeaway/Home Delivery
Some F&B establishments provide both dine-in and takeaway / home delivery for the same food items, but service charge is imposed on dine-in only.
As an administrative concession, there is no need to display two price lists, i.e. one showing GST-inclusive and one showing GST-exclusive price.
The F&B establishment is allowed to display GST-exclusive price for both even though takeaway / home delivery is not subject to service charge. However, the F&B establishment has to display a prominent statement on the menu that prices displayed are subject to service charge and GST.
For food items that are solely for takeaway / home delivery and are not subject to service charge (e.g. sales of mooncakes and New Year cookies etc.) the prices displayed must be GST-inclusive.
Providing Complimentary Hotel Room
Hotels may provide complimentary rooms as part of promotional packages to attract customers. GST is charged on the price of the whole promotional package.
Example 2: Complimentary Hotel Room as Part of a Package
As a promotional package, your hotel guest will get a complimentary room with the booking of three rooms. The price payable for the whole promotional package is $1,200. In this case, the GST is chargeable on $1,200.
Providing Rooms for Free for Business Purpose
When you provide the hotel room for free (without your client purchasing other goods or services) for business purpose, you do not need to account for GST because the hotel room remains as part of your business assets.
This is different from giving away goods for free such that the goods no longer form part of your business assets. For more information, please refer to gift and sample.
Providing Rooms for Free for Non-Business Purpose
When you put the hotel rooms to private use or provide it for free for non-business purpose, you need to account for output tax on the use of the hotel room based on the full cost to you of providing the use of the room.
For more information, please refer to putting asset to personal use.
Can I refuse to pay service charge?
It is common for businesses in the hotel or food and beverage industry to impose a service charge on their goods and services provided. IRAS does not interfere with such business decisions.
Whether the customer should pay for the service charge depends on the agreement between the customer and the business on the price payable for the goods and services provided.
My hotel guest has compensated the hotel for burning a hole in the carpet. Is the compensation subject to GST?
If the compensation is punitive in nature, there is no supply. Therefore, you do not need to charge GST on the compensation.
My customer made a guaranteed reservation for my hotel room and provided the credit card details. However, the customer failed to take up the room subsequently. Under my hotel policy, I will deduct a no-show / cancellation charge from the credit card. Is the no-show / cancellation charge subject to GST?
Yes. You have to charge GST on the no show or cancellation charges imposed on customers.
Is a service apartment treated as a residential or commercial property?
For the purpose of GST, service apartment is treated as residential property. Therefore, the bare rental of service apartment is an exempt supply.
However, the lease of furniture and fittings and the provision of services are taxable. GST needs to be charged on these components.
For more information on charging and accounting of GST for residential properties with taxable components, please refer to GST Guide to Property Owners and Property Holding Companies (PDF, 423KB).