The Goods & Services Tax (GST) was implemented in Singapore on 1 April 1994. Similar to the Value Added Tax (VAT) in other countries, the GST is a tax levied on domestic consumption of goods and services. It is intended as a means to allow the government to collect revenue while keeping income taxes affordable for the general population. At 7%, Singapore’s GST rate is one of the lowest in the world. Businesses that have annual turnovers in excess of $1 million have to collect GST on the sale of their products and services. As they are collection agents acting on behalf of the government, they have up to a month after their quarterly tax filings to transfer the tax money collected to the Inland Revenue Authority of Singapore (IRAS).
Businesses, like consumers, have to pay taxes on the purchases of goods and services, if the vendors are GST-registered entities. Unlike consumers, however, businesses are able to claim the taxes paid in the purchase of such taxable supplies. While consumers are always the last parties in the tax chain and therefore have to absorb GST in their purchases, businesses are not and they are in a position to produce taxable goods and services for other businesses and the eventual consumers. Provided they satisfy conditions set by IRAS, businesses can claim GST incurred in their purchases, known as input tax.
A company is able to claim input tax incurred in its purchases, as the purchases made will contribute to the production of taxable supplies for their customers. An importer of iron ore, for example, is able to claim the input tax incurred in the import of this raw material, as it will sell the products to steel manufacturers, who will pay GST for their purchases. Likewise, an ice cream chain that pays GST to its supplier of flour and eggs will be able to claim the taxes paid to it, because it produces ice cream that attract GST for its retail customers.
IRAS allows input tax claims for the purchase of non-residential properties too. A company that acquires commercial and industrial property is able to claim input tax, because the property will be used in the production of taxable goods and supplies. When a food manufacturer pays a property developer GST for the purchase of a strata-titled food factory, the food factory will be used to manufacture processed food that will find its way to supermarket shelves. As the manufacturer collects GST from the supermarkets and this tax will be paid to IRAS, the tax incurred in the initial property purchase can be claimed. IRAS also allows the claiming of GST incurred in property conveyancing, as well as other professional services like property valuation. Although realtors encourage business owners and investors to incorporate companies and have them GST-registered when they purchase commercial and industrial properties, IRAS has guidelines in place to ensure that the system of input tax claims is not abused. Among other things, they ensure that individuals do not claim GST for the sole purpose of costs savings.
Each company registered with the Accounting & Corporate Regulatory Authority (ACRA) has a prescribed accounting period. This is usually a quarter that ends on 31 March, 30 June, 30 September or 31 December. At the end of the accounting period, the company submits the GST tax return to IRAS. They submit the figures for output tax (tax collected for the sale of goods and services) and input tax. In the example of the iron ore importer, it will have paid input tax to Singapore Customs (IRAS’s tax collection agent) and collected output tax from the steel manufacturers. The ice cream chain will have paid input tax to the food distributor and collected output tax from the consumers. As for the food manufacturer, the input tax will have been paid to the property developer and output tax will have been collected from the supermarkets. During the collection of taxes by all commercial vendors, a tax invoice is provided in place of an invoice or receipt, which are used only when the vendors are non-GST-registered. However, in the case of tax collection by Singapore Customs, the tax is accounted for in the import permit.
In all cases, the companies claiming input tax must ensure that their basis of claiming input tax on the date of posting the suppliers’ tax invoices or import permits into their accounting systems is applied consistently for all their GST returns. In addition, they have to ensure that they have the original tax invoices or import permits at the point of claiming, and that they have internal controls in place to prevent double-claiming of input tax. Needless to say, the claimants can only claim input taxes incurred during the associated accounting periods. This is the reason companies should invest in the services of a professional accounting firm. A responsible outsourced accounting firm will ensure the correct matching of tax invoices or import permits with the correct accounting periods so that customers do not miss their GST refunds.
With a sound tax regime in place and with all companies playing their part in the marketplace, the companies and economy will only continue to grow.
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