Goods and Services Tax (GST) is considered an integral part of Singapore’s tax system. Essentially a tax levied on consumption, GST is an indirect tax charged to the consumer each time they purchase goods or services, or import goods to the country.
GST is calculated as a percentage of the price at which the goods and services are sold by a taxable individual in Singapore, or the value of goods someone imports. When introduced initially in the year 1994, GST rate was 3%. Almost a decade later, in 2003, the rate was raised to 4% before taking it to 5% in the next year. In 2007 the GST rate was increased to 7%, which is where it stands now.
How GST works in Singapore
Business entities that have an annual turnover of over S$1 million have to get themselves registered for GST. Businesses with lower turnover can volunteer to register as well but this comes with certain conditions that might warrant careful consideration.
Once registered, the trader is required to charge GST for all goods and services rendered. Such tax levied is called output tax while those paid when making purchases for the sake of business operations is known as input tax.
GST rate on domestic goods and services and imports are the same, but there are certain differences in their application. These include specifics related to taxable and non-taxable goods and services and the location where the transaction takes place.
GST on goods and services
The Ministry of Finance broadly classifies the goods and services sold in Singapore as taxable or exempt. Supply within the taxable category is again separated as zero-rated or standard-rated. GST is applicable only to those goods and services that come under the standard-rated group.
As the name implies, goods and services brought under zero-rating are taxed 0%. This is limited to international services and export of goods. While businesses engaged in zero-rated supply are not liable to pay the tax, they can claim refunds on GST they may have had to pay for their inputs. Traders engaged in zero-rated supplies need not even get themselves registered for GST.
GST-exempted goods and services are not required to pay the tax. However, unlike the zero-rated supplies, these traders cannot get reimbursements on GST they may have paid for purchases made to run their business.
At present, supplies that come under non-taxable category in Singapore are residential property sales and lease, and financial services. Transactions made in other countries, foreign goods sold in Free Trade Zones and Zero-GST Warehouses, and private transactions are also considered GST-exempt.
GST on imports to Singapore
GST on goods imported to Singapore is determined at 7% on the item’s customs cost along with applicable duties or, in cases where there have been multiple sales, the cost of the last sale with duty. GST need not be paid on non-dutiable goods that have a cost, insurance, and freight (CIF) value below S$400.
For both the government and businesses, GST offers several benefits. The tax is a stable income source for the former even when there is an economic downturn. A GST registration would also make businesses appear financially well off and this might help them attract more customers.
DBS, in a recently-published report, has suggested that the GST rate in Singapore could be increased by 2 percentage points to 9% in 2018. This may be because the country’s primary balance has continued to widen in the past three years and the government is forced to seek new revenue sources.