Goods and Services Tax (GST) is a broad-based consumption tax levied on the import of goods, as well as almost all the supplies of goods and service in Singapore. Companies can be registered for GST either under compulsory registration or voluntary registration. The liability for compulsory registration of GST depends on the value of one’s taxable turnover, which refers to the value of goods and services supplied that are regarded as taxable under GST purposes.
By Law, IRAS states that if your taxable turnover is more than $1 million in the past year or forecasted to be in the next 12 months, then it is compulsory to register for GST. Businesses below this threshold are not liable to register for GST but may choose to on their own accord.
When one is considering voluntarily registering for GST, it has to consider certain factors. Firstly, if you are able to qualify for registration. Secondly, if you are able to meet the requirements for voluntary registration. Lastly, whether the benefits to you will even outweigh the costs of registering for GST.
Factors to Consider
Assuming that the entity is able to meet the required qualification and conditions for voluntary registration, it is crucial to weight the benefits and costs of voluntary registration. Mentioned below are some of the factors to consider.
1. Responsibility of Being GST Registered
When GST registered, you have an extended list of responsibilities that has to be fulfilled from the government. These responsibilities may increase the administrative costs and hence have to be taken into account.
2. Supplier Profile
When GST registered, you will be able to claim the GST paid from your GST registered suppliers. Moreover, the GST from imported goods can also be claimed. This may increase your gross profits even after returning GST to IRAS.
3. Customer Profile
Being GST registered, you are able to charge customers GST. If these customers are GST registered as well, the selling price can be higher to include the GST chargeable as the customers will also be able to claim the GST. This higher selling price could make you more profitable.
4. The Type of Sales
Being GST registered, you are able to claim GST incurred on your purchases. When these purchases of goods and services that are zero-rated supplies are exported to overseas customers, the GST you charge will be at 0%. This could give you a higher gross profit on your zero-rated supplies as you claim the GST on your purchases but maintain your selling price.
Benefits of Registering for GST
There is an ability to claim back input tax, which is the GST paid on a business’ purchases. If your business is one that makes large amounts of purchases, you pay a large amount of tax to your vendors in the form of GST. As a GST registered business, this input tax can be claimed back from IRAS, enabling you to collect more money which may offset some of your costs. Moreover, as a business starting up, there will be many big-ticket capital purchases that will inevitably be made. Being GST registered, this can help as the amount of GST paid from such large purchases would be substantial.
From the other point of view, if the business was not GST registered, it can be said that it technically pays 7% more on its purchased goods since it is unable to claim back this amount form IRAS.
However, it is also important to know if your business can financially handle being GST registered. With registration comes a larger amount of administrative and record keeping work that the business has to perform, which will add up to a decent about of costs as well. Hence the business has to identify if it is worth registering for GST if the claiming of tax on your purchases can cover the increase of such additional costs.