Large number of S’pore businesses to implement GST rate change

Final price: Decorative ornaments on display in a market in Singapore’s Little India district. The Iras says businesses should be transparent in communicating reasons for price increases to consumers. — AFP

SINGAPORE: Around 8,000 businesses that are newly registered for the goods and services tax (GST) will implement a change in the GST rate for the first time, come Jan 1.

Businesses need to register for GST if their taxable turnover exceeds S$1mil at the end of the calendar year or is expected to be more than that amount in the next 12 months.

The GST rate was raised from 7% to 8% on Jan 1, and will go up by another percentage point to 9% on Jan 1, 2024.

This year’s hike was the first rate change in more than 15 years, with Singapore last increasing the GST rate from 5% to 7% in July 2007.

More than 100,000 businesses smoothly transitioned to the new rate this year. Around 60 charged customers an incorrect GST rate, displayed prices at such a rate, or both, the Inland Revenue Authority of Singapore (Iras) told The Straits Times.

“These businesses subsequently took prompt action to rectify their errors,” Iras said, outlining points businesses should take note of in preparation for the upcoming hike.

First, payments received in 2023 must be subject to the prevailing GST rate of 8%, even if the goods and services are to be provided on or after Jan 1, 2024.

Businesses also need to cater for sufficient lead time for their in-house information technology team or software vendors to incorporate the new 9% rate in their systems, such as for accounting and invoicing, and cash registers, said Iras.

Subramanya Shanbhogue, finance director for South-East Asia at sportswear brand Puma, said his team took about four months, starting in July 2022, to prepare for the GST rate increase from 7% to 8%.

“There was a lot of coordination across various teams, and we had to implement the change across the eCommerce marketplaces we have a presence in, as well as our own online platform and physical stores,” he said.

But the overall process went smoothly, with the team checking invoices issued to customers in the new year to ensure that the maths was in order, he added.

Price displays, including those on price tags, advertisements and websites, are another thing businesses need to pay attention to.

Whether written or verbal, these prices must be inclusive of the 9% GST rate as people need to know upfront the final price they have to pay, said Iras.

There is an exception for food and beverage and hotel establishments that impose a service charge.

They may display prices that exclude GST, but are still required to inform customers that the prices shown are subject to GST and service charge.

The exception does not apply to establishments that levy a nominal service charge without genuine business reasons other than to avoid displaying GST-inclusive prices, said Iras.

“If businesses are unable to change their price displays overnight, they may display two prices: prices inclusive of GST at 8%, applicable before Jan 1, 2024, and prices inclusive of GST at 9% from Jan 1,” it added.

Separately, a common error businesses make is to compute the GST amount correctly while reflecting the wrong rate on receipts and invoices, said Iras, adding that these documents must be updated with the new rate across sales channels.

“Even if they intend to absorb the additional 1% GST, their receipts and invoices issued and price displays that mention the GST rate should still be updated to reflect 9% GST from Jan 1, 2024,” said the authority.

There are also rules businesses should consider to determine whether to charge GST at 8% or 9% if transactions span the date of the rate change.

Even if they issue an invoice at the 8% rate before Jan 1, GST must be accounted for at the new 9% rate if full payment is received and goods and services are provided in the new year.

However, there might be situations where goods and services are delivered in 2023, but the invoice is issued and full payment received after Jan 1.

In these cases, businesses may charge and account for GST at 8% since their products were fully provided to customers before the rate change.

Businesses should also be transparent in communicating reasons for price increases to consumers, said Iras.

During the first step of the rate change, some businesses had increased prices or service fees to account for the higher GST rate, and higher raw material and overhead costs.

However, some told customers that the higher prices were mainly or solely due to the GST rate hike, said Iras.

The Committee Against Profiteering has received over 350 feedback submissions, including 32 cases that involved specific allegations of GST misrepresentation.

The committee said it takes a serious view of any unjustified price increases using the GST increase as an excuse, and will investigate all feedback on such cases. — The Straits Times/ANN