GST Changes in Singapore for 2021: How Should Businesses Prepare
The Singapore government has delayed the increase of the goods and sales tax (GST) rate to after 2021 and thus will remain at the current seven percent rate. The rate hike to nine percent is now expected to occur be between 2022 and 2025. In addition, GST will be applied to low-value goods bought online and imported by air or, as well as business-to-consumer imported non-digital services post from January 1, 2023.
The move to expand the scope of GST comes only one year after foreign digital service providers were obligated to register and be charged for GST, under the Overseas Vendor Registration (OVR) regime.
Foreign digital service providers with global revenue of more than S$1 million (US$744,879) and selling more than $100,000 (US$74,493) worth of digital services to Singaporean customers, during a 12-month period, are obligated to pay the seven percent GST rate.
To cushion the impact of the GST rate increase, the government has set aside S$6 billion (US$4.46 billion) in the Assurance Package issued last year. All adult Singaporeans received cash payments between S$700 (US$521) and S$1,600 (US$1,191) over five years. The government has argued that without the necessary increase, it cannot fulfill its spending needs, particularly in healthcare.
How Should GST Registered Businesses Prepare?
Businesses should review their contracts with suppliers and customers to determine which party should bear the cost of the GST when the rate does increase. Moreover, businesses should review any changes required to be made to their systems or processes in the event of a GST hike.
There are several relief programs the government has provided which businesses can apply. These are:
Major Exporter Scheme (MES)
Under normal rules, businesses are required to pay the GST upfront on imports and obtain a refund from the Inland Revenue of Singapore (IRAS) when submitting their GST returns. MES enables businesses to import non-dutiable goods without paying GST.
Under GST rules, a GST-registered manufacturer must charge GST on supplies of value-added activities performed on their client’s goods that are in Singapore. If the client is an overseas person/entity that is not GST-registered, then the GST costs incurred cannot be recovered.
The ACMT scheme provides relief to contract manufacturers and traders on the need to account for GST on value-added activities supplied to such non-GST registered overseas customers.
Import GST Deferment Scheme (IGDS)
GST on imported goods is normally paid to Singapore Customs at the point of importation. IGDS allows GST-registered businesses to pay their GST import payments when their monthly GST returns are due, thus easing their cashflow.
Extension of GST Rules
From January 1, 2023, the government will extend GST to low-value goods imported via air or post valued up to S$400 (US$298). The GST charge is extended to imported non-digital services and online sales of low-value goods by overseas suppliers, meaning an end to GST-free online shopping for consumers.