The Finance Minister, Mr. Heng Swee Keat announced two important changes to the Singapore Goods & Services Tax (“GST”) on 19 February 2018.
Proposed change in GST rate from 7% to 9%
As widely speculated by the industry key players and the tax practitioners, the Government plans to raise GST from 7% to 9% sometimes in the period from 2021 to 2025. However, the Minister said that the exact timing of this GST rate hike will depend on (i) the state of the economy; (ii) how much the Government expenditure grows; and (iii) how much buoyant the existing Singapore taxes are.
The Minister did expect that this change should occur earlier rather than later in the above period, citing the reason that even after exploring various options to manage the Government expenditure through prudent spending, saving and borrowing for infrastructure, there is still a gap. Moreover, raising GST by 2% will provide the Government with a revenue that is equivalent to almost 0.7% of GDP per year.
Similar to the last rate hike announced in Budget 2007, the Government will implement the GST increase in a progressive manner such as
- continue to absorb GST on publicly-subsidized education and healthcare
- enhance the permanent GST Voucher (GSTV) scheme when the GST is increased, so as to provide more help to lower-income households and seniors.
- implement an offset package for a period to help Singaporeans adjust to the GST increase. Lower- and middle-income households will receive more support.
Comments from WHM Consulting Pte Ltd: we anticipate the proposed GST hike in 2013 as it is a matter of time for the Government to do so because it is one of the easiest and most efficient ways to increase the Government’s tax revenue collection. It would suggest that as a GST-registered business, you are under a heavier obligation to ensure the proper compliance with the GST provision as the quantum of any penalty imposed for failure of complying with the GST provisions will be increasing.
Introduction to the reverse charge provision from 1 Jan 2020
Singapore has made the decision to suspend the reverse charge provision as stipulated under Section 14 of the GST Act since 1 April 1994. What this means is that GST is currently not applicable on imported services provided by an overseas supplier that does not have an establishment in Singapore.
To ensure that the Singapore tax system remains fair and resilient in a digital economy, the Government has embarked on the feasibility study of activating the reverse charge provision 2 years ago and finally in this Budget, it is announced that the reverse charge provision will be effective from 1 January 2020.
For B2B transactions, only businesses that (i) make exempt supplies, or (ii) do not make any taxable supplies need to apply reverse charge. The majority of businesses make taxable supplies and thus would not be affected by this reverse charge mechanism.
The reverse charge mechanism requires the local business customer to account for GST to IRAS on the services it imports. The local business customer can, in turn, claim the GST accounted for as its input tax, subject to the GST input tax recovery rules.
The taxation of B2C imported services will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators which make significant supplies of digital services to local consumers to register with IRAS for GST.
IRAS will release further details by the end of February 2018.
Comments from WHM Consulting Pte Ltd: we were not surprised with the introduction of the reverse charge mechanism as we understand that the Government has embarked on the feasibility study a few years back. Even Malaysia has introduced reverse charge mechanism in its GST provision when it was first launched in 2014. GST-registered businesses should get proper education to understand how the reverse charge provisions work and make sure that they have systems in place to keep track of such B2B transactions.
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