What is GST?
GST stands for the Goods and Services Tax (GST). It is often referred to as Value-Added Tax (VAT). It is the value-added tax levied on most goods and services sold for domestic consumption. GST is charged on supply of goods and services in Singapore and importation of goods into Singapore.
According to the GST: General Guide for Businesses, only GST-registered businesses can charge GST (iras.gov.sg, 2021). The current rate of GST in Singapore is 7% but as of January 1st 2023, the GST rate will increase to 8% (ASEAN Briefing, 2022).
Impact of GST Increase on Businesses: Why does this matter?
The business adds the GST to the price of the product, and a customer who buys the product pays the sale price inclusive of the GST. The GST portion is collected by the business or seller and forwarded to the government. Here are some common impacts of the GST increase on businesses
- Less consumer spending: With the increase in GST, the overall price of products and services would increase. This would lead to a negative impact on consumer spending, especially when it comes to luxury goods. Individuals and businesses would be more aware of their expenses as they would be spending more for the same amount of goods and services they got previously.
- More cost pressure on SMEs: An increase in GST would impact SMEs, as it would lead to increased business expenses. Most SMEs already struggle to maintain the current prices of their goods and services so a further increase in the selling price would affect their consumers’ spending.
- Rise in business expenses: An increased GST rate would result in a corresponding rise in business expenses, as companies might need to absorb part of the tax.
Why is Singapore increasing the GST?
According to Singapore’s Ministry of Finance, increasing the GST is necessary to help meet the country’s expanding social needs, security needs and other needs. The increase of GST is to support public spending that benefits Singaporeans. In order to provide better healthcare, education and security, it is necessary to increase GST (mof.gov.sg, 2022).
How can this impact businesses operating in Singapore?
Here a few matters to consider in preparation for the change in the GST rate:
- Update their accounting, invoicing and billing systems to accommodate for the new GST rate
- Update their price lists (e.g. changes to prices listed on websites, social media or product shelves).
- Review and update contracts with suppliers, clients or customers to accommodate the new GST rate.
- Train employees to understand the relevant GST legislation.
- Modify relevant spreadsheets and automations.
Over the years, the Singaporean Government has introduced several ways, such as government support schemes, to help create a pro-business environment and relieve pressure for businesses. As we head into 2023, make sure you plan ahead and research how GST rates can impact your business.
More questions? Here are some websites to check out:
1. GST Guides for each industry (Singapore Government Agency): iras.gov.sg/taxes/goods-services-tax-(gst)/specific-business-sectors
2. GST: General Guide for Businesses (Ninth Edition, Published on 10th Feb 2021): iras.gov.sg/media/docs/default-source/uploadedfiles/pdf/etaxguide_gst_gst-general-guide-for-businesses(1)65e0cbd7-23cb-450d-b2e3-a8491bc4733b.pdf?sfvrsn=1c04f150_5
3. ASEAN Briefing: aseanbriefing.com/news/singapore-to-begin-goods-and-sales-tax-increase-from-january-2023/