GST Phase 2 is Coming – Here’s What You Need to Know
In the Budget 2022 announcement, Singapore’s Finance Minister, Lawrence Wong, announced that the Goods and Services Tax (GST) rate will increase in two phases: from 7% to 8% on 1 January 2023 and secondly, from 8% to 9% on 1 January 2024. The revenue from this increase will be used to fund Singapore’s future infrastructure projects and take care of Singapore’s growing community of elderly citizens.
With the first phase of the GST increase behind us, the impact on businesses and consumers is evident. Some companies absorbed the cost and used the increase as a marketing opportunity to demonstrate customer loyalty. Others quietly made price adjustments with customers aware of the upcoming change.
Now that we have passed the first phase, it is time to start preparing for the second, aiming for the smoothest transition possible.
What Rate to Charge When
Businesses that are GST-registered should use the applicable rate at the time of supply:
8% GST must be charged on invoices issued and paid between 1 January 2023 – 31 December 2023,
9% GST must be charged on invoices issued and paid from 1 January 2024 onwards.
But what if a transaction straddles the rate change period? For example, you get invoiced for a service that starts in November 2023 and finishes in February 2024 – what happens then?
Here, transitional rules apply.
Transitional Rules Explained
Transitional rules are guidelines that ensure appropriate GST rates are applied to goods and services that straddle the rate change. In the case of GST phase two, they ensure the correct rates are applied to goods and services that are sold and disbursed over a period that spans both 2023 and 2024.
Let’s look at a real-life example:
Background
Company A is providing consultancy services to Company B.
These services last between 1 December 2023 to 28 February 2024 (3 months).
The services cost S$ 16,000 per month.
Company A will issue the invoice in advance of the contract.
Company B will pay the invoice at the end of the contract on 1 March, 2024.
Step 1:
On 30 November 2023, Company A issues an invoice for S$ 48,000 + S$ 3,840 (8% GSD).
Step 2:
By 15 January 2024: Company A issues a credit note for the period 1st January to 28th February 2024. The credit note totals S$ 32,000 + S$ 2,560 (8% GST).
Step 3:
In January 2024, Company A issues an invoice for S$ 32,000 (the credit note value), but this time with a GST of 9% (S$ 2,880).
NB These steps do not impact Company A’s Profit & Loss statement as both companies are GST registered.
Transparent Pricing
Businesses must be transparent with customers about pricing. Any quotes given must be GST-inclusive at the appropriate rate.
There is one exception to this rule: GSD-registered hotels and food & beverage establishments are not required to display prices, including GSD. However, customers must be informed that prices are subject to GST and service charges.
Accela Finance: Navigate the GST Increase with Confidence
At Accela Finance, we aim to make your transition as smooth as possible when implementing the GST increase and other financial changes. Accela’s specialists offer consultations, ensuring organisations fully understand the GST increase and its implications, mitigating the impact on their finances.
Is your business looking for GST guidance? Let’s chat: [email protected]