FAQ: Goods and Services Tax (GST) in Singapore and How It Affects Your SME Accounting
Goods and Services Tax (GST) is an essential part of doing business in Singapore, but many small and medium-sized enterprises (SMEs) may have questions about how it works and how it affects their accounting. Whether you’re just getting started or looking to understand the implications of GST on your business operations, this FAQ provides helpful insights on what GST is, when it applies, and how it impacts your financials.
1. What is Goods and Services Tax (GST) in Singapore?
Goods and Services Tax (GST) is a consumption tax levied on the sale of goods and services in Singapore. It is a broad-based tax applied at each stage of the supply chain and is ultimately borne by the final consumer. As a business, you collect GST on behalf of the government when selling goods or services to your customers.
In Singapore, the current GST rate is 8%, effective from January 2023. The government has announced that it will increase this rate to 9% in 2024. It’s important to be aware of the current and future rates to ensure accurate pricing and tax calculations.
2. When is a business required to register for GST in Singapore?
A business is required to register for GST if it meets any of the following criteria:
- Annual taxable turnover: If your business’s taxable turnover exceeds S$1 million in the past 12 months, or if you expect it to exceed that threshold in the next 12 months, you are required to register for GST.
- Voluntary registration: Even if your business does not meet the S$1 million threshold, you may choose to voluntarily register for GST if your annual turnover is below that threshold. This could be beneficial if you want to claim back the GST on business purchases or if you anticipate exceeding the threshold in the near future.
Once registered, your business will need to charge GST on your sales, file GST returns, and remit the collected tax to the Inland Revenue Authority of Singapore (IRAS).
3. How does GST affect my SME’s accounting?
When your business is registered for GST, it needs to account for GST on both sales and purchases. Here’s how GST impacts your accounting:
- Sales: When you sell goods or services, you charge GST to your customers. This is recorded as output tax in your accounting records.
- Purchases: When you buy goods or services for your business, you pay GST to your suppliers. This is recorded as input tax in your records.
- GST Payable/Receivable: At the end of your GST reporting period, you compare the output tax (GST collected on sales) with the input tax (GST paid on purchases). If your output tax exceeds your input tax, you owe GST to IRAS. If your input tax exceeds your output tax, you can claim a refund from IRAS.
In your accounting, you’ll track both output and input tax separately, ensuring that your GST filings are accurate and that any GST payable or refundable is properly recorded.
4. What are the filing requirements for GST?
As a GST-registered business, you must submit your GST returns to IRAS on a regular basis. The standard filing periods are quarterly or monthly, depending on the size of your business.
- Filing deadlines: GST returns must be filed within 1 month after the end of the accounting period. For example, if your accounting period ends on 31 March, the GST return must be submitted by 30 April.
- GST Returns: The return must detail the output tax collected on sales and the input tax paid on purchases. If the output tax exceeds the input tax, you need to pay the difference to IRAS. If the input tax exceeds the output tax, you can claim a refund from IRAS.
Make sure to maintain accurate records of all transactions involving GST to simplify your GST return filing process.
5. What is the difference between output tax and input tax?
- Output Tax: This is the GST that you charge to your customers when you sell goods or services. For example, if you sell an item for S$100, and GST is charged at 8%, the output tax would be S$8 (8% of S$100).
- Input Tax: This is the GST that you pay when purchasing goods or services for your business. For example, if you buy an item for S$100 (including GST), the input tax would be S$8 (8% of S$100).
The key to GST accounting is that you can offset your input tax against your output tax. If your output tax exceeds your input tax, you need to remit the difference to IRAS. If your input tax exceeds your output tax, you can claim a refund.
6. Are there any GST exemptions or items that are not subject to GST?
Yes, not all goods and services are subject to GST. Some key exemptions include:
- Exempt supplies: Certain goods and services, such as financial services, the sale and lease of residential properties, and certain health and education services, are exempt from GST. If you deal with these exempt supplies, you cannot claim back input tax on related purchases.
- Zero-rated supplies: Some goods and services are subject to a 0% GST rate, such as the export of goods, international services, and the supply of certain prescribed items like certain basic foodstuffs. While these supplies are subject to GST at a rate of 0%, you can still claim input tax on related purchases.
7. How does GST impact cash flow for SMEs?
GST can impact your SME’s cash flow in both positive and negative ways. Here’s how:
- Positive impact: If your business makes more purchases than sales (e.g., if you are investing in assets or supplies), you can claim back more input tax than the output tax you collect. This can result in a refund from IRAS, improving your cash flow.
- Negative impact: If you collect more output tax than input tax, you need to pay the excess amount to IRAS. This can affect your cash flow, especially if your business is not well-prepared for the payment deadlines.
It’s important to plan your cash flow carefully, ensuring that you can handle any GST payments that may be due while taking advantage of any refunds you may be entitled to.
8. Can I claim back GST on business expenses?
Yes, as a GST-registered business, you can generally claim back the GST you paid on business-related expenses. This includes GST paid on purchases such as:
- Office supplies
- Equipment and machinery
- Professional services (e.g., legal, accounting)
- Utilities
- Marketing and advertising expenses
To claim the GST, ensure you keep proper documentation such as invoices and receipts that show the GST paid on these business expenses.
9. What happens if my business fails to comply with GST regulations?
Failure to comply with GST regulations can result in penalties and interest from IRAS. Penalties can include:
- Late filing penalties: If you miss the filing deadline for your GST returns, you may be subject to penalties.
- Late payment penalties: If you fail to pay your GST on time, IRAS will impose penalties and interest on the overdue amount.
- Non-compliance penalties: If you fail to charge GST on taxable supplies or incorrectly claim input tax, you may face further penalties.
To avoid these issues, it’s essential to ensure accurate and timely filing of GST returns and payment of any amounts due. Working with an accountant can help ensure that you remain compliant with all GST regulations.
10. How can an SME get help with GST compliance and accounting?
If managing GST seems complex or if you’re unsure about how to properly account for GST in your business, seeking professional assistance can be invaluable. An experienced accountant or tax advisor can help you:
- Register for GST and ensure you meet all necessary criteria.
- Maintain accurate records of both output and input tax.
- File GST returns on time to avoid penalties.
- Plan your cash flow effectively to manage GST payments or refunds.
At Counto, we offer expert accounting and tax services to help SMEs navigate GST compliance with ease. Our combination of automation and professional support can simplify the process, allowing you to focus on growing your business.
Summary
Goods and Services Tax (GST) is an important consideration for every GST-registered business in Singapore. By understanding how GST works, what you’re required to charge and pay, and how to handle your accounting, you can ensure compliance and make the most of your GST registration.
If you’re unsure about your GST obligations or need help managing your GST returns, don’t hesitate to consult with a professional accountant. At Counto, we’re here to support your business and help you navigate the complexities of GST with confidence.