SINGAPORE - With two months to go before the new goods and services tax (GST) kicks in on Jan 1, most GST-registered businesses have started preparing for the hike, said the Inland Revenue Authority of Singapore (Iras).

About 40 per cent of the 100,000 or so GST-registered businesses will be dealing with a rate change for the first time, added the tax authority. GST was last raised in 2007.

Firms will have to ensure that their systems and contracts are compliant when the GST rises to 8 per cent on Jan 1.

“For those who have not yet started, they should do so immediately and not wait till the last minute,” said Iras, which was providing an update following the debate on the GST (Amendment) Bill in Parliament earlier this week.

The two-step GST rate change from 7 per cent to 8 per cent in 2023, and to 9 per cent in 2024 was announced at Budget 2022.

Firms must register for GST if their taxable turnover exceeds $1 million at the end of the calendar year, or if at any point in time, they expect turnover to be more than $1 million in the following 12 months. 

They can also register voluntarily if they are not liable for compulsory registration. 

Beverage supplier Pere Ocean, which has around 70 employees, is one of the early birds. 

Mr Eugene Tan, its head of special projects, told The Straits Times that the firm has already been in discussion with its enterprise resource planning system provider to ensure compliance with the rate change. 

Enterprise resourcing planning software is used to manage business activities such as accounting and human resources. 

Advertising and other marketing materials will also be reviewed to ensure customers are up to speed, Mr Tan added.

He noted that informing customers, making sure payments are made within stipulated timelines so that accounts can be adjusted accordingly, and retooling computer systems and the like to handle the changes are areas where the company is placing greater focus. 

“(If we do not do so properly), it might appear we have increased our product cost, and this could negatively impact business,” Mr Tan added. 

Firms are advised to make sure they have enough time for their in-house IT team or software vendors to incorporate the new GST rate in their systems.

Mr Daniel Ang, business development adviser at SME Centre @SMCCI, provides support and business insights to small and medium-sized enterprises (SMEs). 

He and other advisers have been helping firms address their GST concerns around issues such as profitability and costs, given the challenging economic climate. 

Mr Ang noted that the main fear among bosses is how the GST hike may affect profits, as consumers are likely to cut back on spending following the 1 percentage point increase.

SME retailers dealing with non-essential goods are likely to face the brunt of it, he said, adding: “Businesses are also worried about losing their customer base if they pass the cost burden to (them).

“And the reduction in the customer base will lead to lower sales revenue generated in excess of business costs, which ultimately hurts their bottom line.”

Key things to note

Firms should update their systems to incorporate the new GST rate to take effect from Jan 1, including accounting and invoicing, retail management and cash register and receipting for point-of-sales billing. 

They should also understand the transitional rules that will apply around the rate change on Jan 1 and make sure their staff are fully informed. 

When an invoice for goods is issued before Jan 1 but the goods are delivered and full payment received after Jan 1, GST must be calculated at the new rate of 8 per cent. This is because payment and delivery occur after the rate change. 

However, when services are fully performed before Jan 1 but invoices are issued after Jan 1, businesses can elect to charge GST at 7 per cent. This is because the services have been fully performed before the rate change. 

Businesses should also ensure that their price displays include the 8 per cent GST from Jan 1. 

More details on preparing for the GST rate change can be found here: www.go.gov.sg/irasgst-rc-businesses