All of us know what the Goods and Services Tax (GST) is – the annoying 7% extra that we pay on things that we purchase in Singapore. In most other countries, this is also known as the Value-Added Tax (VAT).
This is a tax that affects everyone in Singapore, we would assume that most people are familiar with how GST works. Yet beyond knowing that we have to pay 7% tax on goods and services that we consume, many of us do not really know much more about it.
Here are 4 things that we think everyone in Singapore should know about the GST.
1. Only Businesses With Taxable Turnover Of More Than $1 Million Need To Register For GST
Not all businesses in Singapore are GST-registered. Only businesses that have a taxable annual turnover of more than $1 million are required to register for GST.
GST is collected by these businesses and payable to the government. Non-GST registered businesses are not supposed to charge this additional 7% to their customers. If they do, they are simply trying to find a way to cheat their customers. Period.
2. There Is No “Double GST Tax” Effect
Some people may think that there is a possible effect of “double GST tax” for goods that passes through multiple GST-registered businesses during the process of creating the good before it reaches the end-users. Here is the reason for their argument.
- Business A sells Product A to business B.
- Business B turns Product A into Product B. Sells it to Business C.
- Business C turns Product B into Product C. Sells it to the consumer.
Assuming that each business earns a margin of 10% and required to charge 7% GST, this could be a logical breakdown of the final cost of the good.
|Purchase Price||Selling Price (10% margin)||Sell Products (With 7% GST)||GST Payable|
From the calculation above, it appears that the government is earning a total of $0.25 from a product which ultimately cost the consumer $1.49. The total GST collected is 16.8%, rather than the 7% it was supposed to be. The reason for this is because of the multiple times GST are charged whenever it passes through a business.
But this is NOT how GST works…
GST-registered businesses can claim for qualified GST expenses that it incurs. This means that even though a product they bought may cost $1.07 (after GST), the business can claim $0.07 back from the government. As such, they do NOT have to pass down the cost to the next business or customer that they sell it to.
Here is a more accurate depiction of how businesses would pass down GST cost to the end-users.
|Purchase Price||GST Claimed||Actual Cost||Selling Price (10% margin)||Sell Products
|Business B||$1.07||– 0.07||$1.00||$1.10||$1.17||$0.07|
The government collects a total of $0.23 but returns $0.14 back to the various businesses involved in creating the good. Their net collection is $0.09, which is 7% of the final selling price of $1.30 that the consumer pays for.
3. Businesses Have To Quote All Prices Inclusive Of GST
Most of the time, we do not have to do our own mental calculation of how much GST will add to the cost of a product that we are buying. This is because businesses are required by IRAS to show all prices to their customers inclusive of GST. For example, any advertised price on advertisements must include the cost of GST. Businesses are not allowed to quote you a price without the GST, and then add it in after you have committed to the purchase.
A few years ago, we experienced a shop in Sim Lim Square that tried to charge us an additional 7% GST after we have verbally committed to the price for the item we want to buy. We walked out. Such practices are illegal and not allowed. Any shop that tries to price in a GST after you have already agreed to buy the good is likely to be a fraud company trying to get you to pay more by pretending to be GST-registered. If you have been a victim of this, do check on your case with IRAS.
Since then, we have not returned to Sim Lim Square.
4. There Are Exemptions To This Rule
Before anyone starts complaining to IRAS about restaurants that do not show the actual price of the items on their menu with GST charge, it is worth noting that an exception is made for businesses in the hotel and food & beverage (F&B) industry.
The reason for this is due to the fact that these businesses typically have service charge that leads to difficulties for them in displaying GST-inclusive prices. While they are not required to display GST-inclusive prices, they have to prominently indicate a statement that their prices are subjected to GST. This explains why most restaurants always put a “++” sign in their menu.
We hope that you are now more familiar with how GST really works in Singapore.
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