SMEs do not want lower GST threshold

A rehearsal held at Intune Music School in December involving instructors, students, parents and members of NTUC's youth group nEbO. The school has an annual revenue of between $700,000 and $800,000. Mr Lim (foreground, left with hat), its founder an
Mr Aaron Lim (foreground), founder and director of Intune Music School, does not support the idea of raising the GST threshold. The school has an annual revenue of between $700,000 and $800,000. PHOTO: INTUNE MUSIC SCHOOL

Many fear the move will raise costs, lower competitiveness

Some small businesses in Singapore are not in favour of the call to lower the threshold for the goods and services tax (GST) registration to $500,000.

They believe such a move would lift their business costs, given the paperwork involved.

"As a business owner, I don't support the proposal," said Mr Aaron Lim, founder and director of Intune Music School.

MATTER OF TIME

We knew that as the business grows, in time to come, we will hit $1 million in annual sales. So, we set up the accounting system to be GST-compliant once and for all.

MS GRACE TAN, finance director of Singapore Ace Concept, on why the food company decided to register for GST from the get-go

"A business with that level of revenue is not really strong enough to be able to take on too many additional costs, and the GST registration will certainly add more burden to the business as a whole," he said.

Intune Music School has an annual revenue of between $700,000 and $800,000, and is not GST-registered as it has not reached the $1 million annual revenue mark.

Earlier this month, Ernst & Young laid out its Budget wish list for this year. Among other things, it urged the Government to explore new tax revenue options to support spending. Lowering the GST registration threshold to $500,000 a year could be considered, it said.

"With the expected increase in social spending by the Government, a decrease in the GST registration threshold could bring more businesses into the GST net, and increase revenue collection," said Ernst & Young Solutions' GST Services partner Kor Bing Keong.

According to the Inland Revenue Authority of Singapore (Iras), about 29,000 businesses here have a turnover of $500,000 to less than $1 million. Of these, 23 per cent have registered for GST voluntarily.

Singapore Ace Concept, a manufacturing company that prepares and sells salads to other businesses, registered itself for GST when it was set up in 2012. Today, its annual sales is "almost" at the $1 million mark, said finance director Grace Tan.

She said: "We knew that as the business grows, in time to come, we will hit $1 million in annual sales. So, we set up the accounting system to be GST-compliant once and for all."

If the company had not been GST-registered, it would have to pay GST on the raw materials it bought, meaning it had to absorb GST as part of the business cost.

"That will be a burden on us, and our expenses will become higher. Besides, we won't be able to see a clear picture of the actual cost of the product," Ms Tan said.

She added that she supports the lowering of the threshold so that smaller companies can claim back from Iras the GST they pay.

"Now, they pay GST, but cannot claim it back. So, in actual fact, the businesses are paying more."

But Dr Ong Eng Hwee, founder of tech start-up Avennetz Technologies, said he thinks this puts unnecessary strain on small businesses' limited resources.

"It may bring about a vicious circle where the rising business costs may translate to higher prices, essentially making our local products less price-competitive," said Dr Ong. This could end up making it "extremely challenging to sustain any business and technological innovations", he added.

Small businesses also worry about the impact of GST on customer perception.

"Some customers we spoke to tend to be turned off by GST as the prices don't look good on paper," said Freda D Parfum's perfume designer Faridah Yusuf.

For example, she said a perfume's price tag may be $57 without GST, but with GST, it becomes $61.

Mr Lim said he may lose clients if the school starts charging GST. "In our competitive music school industry, many clients are quite price sensitive... and they will easily switch to taking courses at other music schools or companies that don't charge them GST," said Mr Lim.

While lowering the threshold for GST registration may help the Government collect more revenue, it may not be the right time to do so now, said Ms Michelle Seat, a tax director at Foo Kon Tan LLP.

"The economy is not doing very well now, so this will definitely cause a lot of unhappiness among the small and medium-sized enterprises," said Ms Seat.

After a company is GST-registered, it will have to file quarterly GST returns. Inevitably, some form of accounting support will be needed, and this raises administrative cost.

"Already, SMEs are complaining about rising costs, so I don't think the Government will resort to this measure to increase revenue," said Ms Seat.

A version of this article appeared in the print edition of The Straits Times on February 23, 2016, with the headline 'SMEs do not want lower GST threshold'. Print Edition | Subscribe