In Singapore's 2022 Budget, the Minister of Finance confirmed that the tax on goods and services (GST) will increase starting 1 January 2023. This change breaks a 15-year cycle of consistent GST rates in Singapore.
The confirmed increase will follow a phased approach. The first stage includes an increase from 7% to 8% on 1 January 2023. After that, an expected increase from 8% to 9% from 1 January 2024. How does this impact your business dealings, and are you prepared for the imminent change?
Why is Singapore increasing their GST rate?
Following a 15-year consistency, the sudden change may seem abrupt. So, why the increase, and why now? The Minister of Finance confirmed that the increased GST rate on goods and services is a necessary and strategic decision to help fund revenue needs. The additional funds gathered from the raised rate are said to fund the healthcare and social needs of Singapore's ageing population. However, businesses should note that despite an increase to 9% in 2024, Singapore's GST rate remains below the Asian average of around 12%.
How to prepare for the fast-approaching GST rate increase
Resident Singapore businesses and foreign businesses registered for GST in Singapore need to move quickly to be fully prepared by 1 January 2023.
Be mindful of how you reflect the new rates on your invoices
Although it may be tempting to apply the new 8% GST rate on all invoices on or after 1 January 2023, businesses must comply with strict invoicing requirements. In a recent FAQ for companies, The Inland Revenue Authority of Singapore (IRAS) provides guidelines for businesses on correctly issuing invoices in the initial stages and applying the correct GST rate in different scenarios.
According to the guidance, businesses must consider two factors in determining which GST rate to reflect on their invoices.
- The date of the payment received from your customer.
- The date when the customer receives the goods or services.
Ultimately, if a business received payment before 1 January 2023, they must charge a 7% rate, as the time of supply activates before the effective increase date. Companies may only issue an invoice at the 8% rate after the rate change effective date, even if the payment and delivery of goods will be made after the rate change.
So, what happens if you're issuing invoices now for payments occurring after the effective date?
For all invoices issued before 1 January 2023, a business must reflect the 7% rate on their invoices. However, suppose the payment is received for the invoice after 1 January 2023. In that case, businesses will need to issue a note to cancel the original invoice and issue a new invoice for the goods delivered after the rate change, showing 8% as the GST rate. To ease the process and avoid disputes, businesses should inform their clients of the upcoming rate change and how it may affect the invoicing process.
GST-registered businesses must correctly display the new rate increase on the price.
All GST-registered businesses must display GST-inclusive prices on their price displays from the effective date. This means that the final price on display must include the GST VAT rate of 8%. However, if businesses cannot update their price displays before the new year, it's acceptable to display two different prices. One is valid for purchases before 2023 at 7%, and one applies to all purchases after 1 January 2023 at a GST rate of 8%.
Inter alia, the guidance also speaks to;
- Security deposits collected before the rate change date but applied/offset as payments for lease rental after the rate change date;
- Import permits taken up at 7% GST before 1 Jan 2023, but goods cleared and imported into Singapore on/ after 1 Jan 2023;
- Hotel stays straddling rate change date;
- Construction services completed before the rate change date, but the retention sum only released during the defect liability period.
How should a business issue an invoice for goods delivered after the rate change date?
A business is not allowed to issue a tax invoice with GST at 8% before the rate change effective date. If a business should issue a tax invoice before 1 Jan 2023, the invoice should reflect 7% GST on the tax invoice. If the payment is not received before 1 Jan 2023, a credit note would need to be issued to cancel the original tax invoice and to issue a new tax invoice for the goods delivered after the rate change, showing 8% as the GST rate.
When a business issues a tax invoice to a customer before 1 Jan 2023, they are advised to inform their customer of the potential GST adjustment under the rate change transitional rules to avoid dispute on the GST rate and GST amount payable on the supply.
Know what to avoid
To best approach the upcoming tax on goods and services rate increase, it's essential to know what to avoid and what constitutes non-compliance. Non-compliance includes:
- Incorrect invoices
- Incorrect pricing displays
- Collecting 8% before 1 January 2023
- Charging and collecting tax on goods and services without being registered.
Convenient compliance with VAT IT
Rest assured that your business is always in the loop with the latest VAT and GST rate changes worldwide and knows how to stay compliant. Do you have questions about specific VAT or GST rates or returns? Reach out to our experts here.
Subscribe to our monthly VAT newsletter