How to Prepare For Singapore's Upcoming GST Increase
In Singapore’s Budget 2022 announcement, the Minister for Finance announced that the Goods and Services Tax (GST) rate will be increased in stages starting in 2023. While this was originally planned for 2022, the increase was delayed and shifted to two phases, from 7% to 8% from 1 January 2023 and from 8% to 9% from 1 January 2024. The revenue from this increase is to be put towards supporting the company’s healthcare costs and taking care of seniors.
The relatively low tax rate is consistently noted as one of the reasons Singapore is a compelling place to set up a business. While the new rates will still be low compared with the rest of the world, they’re significant for businesses in Singapore - so it’s important to start preparing in advance for a smooth transition.
What Rate to Charge When?
Businesses who are GST registered should charge GST at the prevailing rate at the time of supply, meaning for any invoice issued on or before 31 December 2022, 7% GST should be charged.
If an invoice is issued and paid on or after 1 January 2023, 8% GST should be charged on supply or delivery of services, unless the business elects to charge 7% GST under rate change transitional rules.
What are Transitional Rules? An Example
A service contract runs from 5 December 2022 to 4 January 2023. The invoice is raised in full when the contract has been completed, i.e. on 4 January 2023.
As most of the service is provided in December 2022, how much GST should be charged on the invoice?
The simple answer is 8% because the invoice is raised in January 2023, but it’s not quite as straight forward as that. Read on below for an adjustment, by way of a credit note, that will be required.
The Calculation
The total days covered by the service contract is 31 (27 days in December 2022, 4 days in January 2023)
Contract value - S$48,000.00 excluding GST
8% GST on invoice - $3,840.00
First we need to calculate how much of the invoice relates to December 2022:
S$48,000.00 x 27 days worked in December / 31 days in whole contract = S$41,806.45
7% GST should be charged on the December element of the contract, as follows:
7% x $41,806.45 = $2,926.45
And 8% GST should be charged on the January element of the contract:
8% x $6,193.55 = $495.48
Correct GST amount overall = $2,926.45 + $495.48 = $3,421.94
A credit note is required for the difference in GST between the amount invoiced of $3,840.00 and the correct amount of $3,421.94, being $418.07.
What Price to Display?
Businesses must indicate prices including GST on all public-facing price displays, as the public needs to know upfront the final price that they must pay. Whether written or verbal, any price that is quoted must be GST-inclusive for the appropriate rate.
Hotels and food & beverage establishments that impose a service charge on goods and services are exempt from this requirement and GST-inclusive prices are not required to be displayed. However, customers must be informed that the prices are subject to GST and service charge so the final cost is clear. The exception does not apply to hotels or food & beverage establishments if they do not impose a service charge.
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Do you need assistance navigating the GST increase and how it might impact your business? Let’s chat: [email protected].