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Singapore's GST Rate Shifts After 15 Years of Stability

January 9, 2023

The Minister of Finance has indicated that the GST will be raised on January 1, 2023. Singapore's Goods and Services Tax (GST) rates had been stable for 15 years until this modification. How ready are you for this next shift?

The Minister of Finance of Singapore said in the country's 2022 budget that the GST will be raised on January 1, 2023. This shift ends Singapore's pattern of maintaining consistent GST rates for the last 15 years.

The agreed increase will be implemented gradually over time. To begin, on January 1, 2023, the current 7% rate will climb to 8%. Afterwards, on January 1, 2024, a rise from 8% to 9% is anticipated. In what ways will this affect your company, and how ready are you for the coming shift?

The reason Singapore is raising its GST rate is unclear.

If you've been used to the status quo over the last 15 years, the shift may seem dramatic. What's the deal with this hike, and why now? The Finance Minister has acknowledged that raising the GST rate on goods and services is a strategic and essential choice to assist in meeting revenue requirements. The government of Singapore claims that the increased revenue will be used to pay for the healthcare and social services required by the country's aging population. However, companies operating in Singapore should be aware that even once the GST rate rises to 9% in 2024, it will still be lower than the 12% regional average.

Preparing for the Imminent GST Rate Hike

In order to be completely ready by January 1, 2023, enterprises in Singapore and abroad that have registered for GST in Singapore need to act swiftly.

If you send out invoices, be careful with how you incorporate the new rates into your changed pricing structure.

The new GST rate of 8% will be effective for invoices issued on or after January 1, 2023; however, firms must adhere to certain invoicing standards. The Inland Revenue Authority of Singapore (IRAS) recently published a frequently asked questions (FAQ) document for businesses that includes instructions for accurately producing invoices in the beginning stages and applying the appropriate GST rate in various circumstances.

The guidelines state that there are two criteria that must be met before an organization can decide which GST rate to use on customer invoices.

  • The date on which you received the money from your client

  • The time at which the product or service is received by the buyer

Since the period of supply activates prior to the effective increase date, the 7% rate applies to payments received prior to January 1, 2023. If a company waits to invoice at the old rate of 6% until payment and delivery occur after the rate change goes into effect, the company will be penalized.

So, what happens if you send out invoices before the effective date, but the money won't be coming in until later?

It is essential that the 7% rate be included on invoices for any transactions that occur prior to January 1, 2023. But let's say the invoice payment isn't made until after January 1, 2023. Any products supplied after the rate change will need a new invoice to be issued, this time indicating GST at the new, lower rate of 8%. Businesses should notify their customers of the planned rate change and how it may influence the invoicing process in order to make the transition smoother and reduce the likelihood of disputes.

Businesses that are subject to the Goods and Services Tax (GST) are required to accurately reflect the recent rate hike in their pricing materials.

From the implementation date forward, all pricing displays used by firms that are registered for GST must include GST. The displayed total price must thus account for the GST VAT rate of 8%. However, it is permitted for firms to show two distinct prices if they are unable to alter their displays before the new year. One relates to purchases made before 2023 at a GST rate of 7%, while the other applies to purchases made on or after January 1, 2023 at a GST rate of 8%.

The recommendations address, among other things:

  • Regardless of when the lease rate increase takes effect, all pre-existing security deposits will be credited against the last month's rent. 

  • Prior to January 1, 2023, import permits are obtained at 7% GST, but goods are cleared and imported into Singapore on or after January 1, 2023. 

  • Hotel stays that overlap the rate change date; 

  • Construction work done before a change in rate for which the retention amount is not released until the end of the defect liability period

Knowing what to avoid and what constitutes noncompliance with the anticipated rise in the tax on goods and services is crucial for preparing for the change. Examples of noncompliance are:

  • Billing errors

  • Misleading price tags

  • If you pay by January 1, 2023, you'll get an extra 8%.

  • Unauthorized collection of sales or use tax on goods or services

Concerned about a certain VAT or GST return or rate? Use this link to contact our helpful staff.

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