IRAS publishes guidance on GST rate change and transitional rules
Effective 1 January 2023 and 1 January 2024, the goods and services tax (GST) rate in Singapore will increase from 7% to 8% and from 8% to 9%, respectively. Further to the announcement of the GST rate change by the Minister for Finance in Budget 2022, the Inland Revenue Authority of Singapore (IRAS) published guidelines (“e-tax guide”), “2023 GST Rate Change: A Guide for GST-registered Businesses,” to help GST-registered businesses prepare (for prior coverage of the budget measures, see the global tax alert dated 2 March 2022).
The e-tax guide provides detailed guidance on the transitional rules for normal and reverse charge supplies, imported digital services under the Overseas Vendor Registration (OVR) regime, price displays, methods of apportionment, adjustments to contracts on changes to GST and the adjustment of tax previously charged, together with new rules on imported non-digital services and Low-Value Goods (LVG) that will take effect from 1 January 2023 (for prior coverage of the LVG changes, see the article in the January 2022 issue of Indirect Tax News). The same transitional rules will apply to transactions that span the change when the GST rate is increased from 8% to 9% on 1 January 2024; however, IRAS will publish a separate e-tax guide by April 2023 to prepare businesses for the second rate change.
Time of supply
Generally, a supply is treated as taking place for GST purposes (and output tax will be accounted for), including the import of services under the OVR regime on the invoice date or the payment date, whichever is earlier. The GST to be applied will be the rate prevailing at the time of the supply. Where an invoice is issued or payment is received before 1 January 2023, the GST rate is at 7%. However, where an invoice is issued or payment is received as from 1 January 2023, the GST rate will be 8% unless an election was made to charge GST at 7% under the transitional rules, subject to the fulfilment of certain conditions.
For transactions (including reverse charge supplies and the import of services under the OVR regime) spanning a GST rate change, in addition to the time of supply, the time of delivery of goods or the performance of services (referred to as “Basic Tax Point”) will have to be considered in determining the applicable GST rate. A transaction will be regarded as spanning a GST rate change when one or more of the following events straddles the date of the rate change:
- An invoice is issued;
- Payment is received (or payment is made in respect of a reverse charge supply); or
- Goods are delivered (i.e., goods are removed or made available) or services are performed (Basic Tax Point).
Transactions straddling the GST rate change
The IRAS e-tax guide provides a step-by-step guide for charging GST on transactions straddling 1 January 2023 for invoices issued before and after that date. GST-registered businesses need to know when their supplies are delivered or services performed, as the case may be, in addition to knowing the invoice date and payment date to determine whether and how the transitional rules would apply to a supply that span the date of the rate change.
The VAT treatment of two common scenarios straddling 1 January 2023 is as follows:
Scenario 1 – Invoice issued before 1 January 2023
- Invoice issued before 1 January 2023;
- Payment received in full on/after 1 January 2023;
- Services completed/goods delivered in full on/after 1 January 2023.
The 7% GST rate must be reflected on an invoice issued before 1 January 2023. However, as the payment is received in full on/after 1 January 2023 and the services are completed/goods are delivered on/after that date, the increased rate of 8% will be applicable. Under the transitional rule, a credit note must be issued by 15 January 2023 to cancel the original invoice and a new invoice must be issued to charge 8% GST on the supply.
Scenario 2 – Invoice issued on/after 1 January 2023
- Invoice issued on/after 1 January 2023;
- Payment received in full on/after 1 January 2023;
- Part of the services provided/part of the goods delivered before 1 January 2023.
Based on the time of supply rule, the supply takes place on/after 1 January 2023 and hence, the 8% GST rate is applicable. However, if the Basic Tax Point takes place before 1 January 2023, the supplier can elect to charge GST at 7% on the value of services provided/goods delivered before that date. The remaining value of the services performed/goods delivered on/after 1 January 2023 will be subject to the 8% rate.
Factors for consideration
In anticipating the GST rate changes, businesses should consider taking the following action steps:
- Update the accounting and invoicing system to incorporate the new GST rate;
- Update the cash register and receipt system to incorporate the new GST rate for point-of-sales billing;
- Change the price display to reflect the new GST rate;
- Train staff on the transitional rules for the rate change and applying the correct GST rate for sales transactions and reverse charge supplies spanning the date of the rate change;
- Review contracts/agreements for the GST rate to be charged or borne by each party; and
- Inform customers of the GST rate increase.
As GST is a broad-based tax on the consumption of goods and services in Singapore, the rate increase will directly impact end consumers but generally not businesses. Therefore, businesses should consider the following to manage increasing business costs:
- GST-registered businesses:
- If a business deals mainly with imports and exports, it could consider applying for an import suspension scheme such as the Major Exporter Scheme, Import GST Deferment Scheme, Approved Import GST Suspension Scheme, etc. Under these schemes, import GST will be suspended when goods are imported into Singapore.
- If a business makes substantial intercompany supplies, the business could consider applying for GST group registration. Once registered under a GST group, supplies between group members are disregarded for GST purposes.
- Perform periodic GST health checks to ensure that GST returns are compliant with the rules and regulations. If errors are identified and disclosed under the IRAS Voluntary Disclosure Programme, the business will enjoy a waiver of penalties.
- Non-GST-registered businesses:
- Non-GST-registered businesses that are not required to register for GST (i.e., their taxable turnover over a 12-month period is less than SGD 1 million) could consider applying for GST registration on a voluntary basis. Once GST-registered, GST expenses incurred by the business can be claimed as input tax credits provided the relevant requirements are met.
Eu Chin Sien