- Osome Blog SG
- When It Makes Sense To Register for GST Voluntarily and When It Doesn’t
3 Сases When It Makes Sense To Register for GST Voluntarily and 1 Case When It Doesn’t
- Modified: 28 August 2024
- 4 min read
- Money Talk
Osome Content Team
VIP Contributor
Osome has been collaborating with 21 authors from 4 countries. We embrace diversity and are proud that lawyers and founders, journalists and financial analysts choose to work with us.
Singapore tax law leaves it up to each business whose annual revenue is below S$ 1M to register for Goods & Services Tax (GST). However, some choose to register way before they pass the threshold.
So let us look into the meaning of voluntary registration under GST and reasons why a business would register with IRAS to pay the tax and find out how to actually save money by paying more tax.
By the way we can figure all of this out for you. Check out our Singapore accounting services!
1 You Buy in the Country A Lot But You Often Sell Your Products Overseas
The goods and services you sell to someone outside Singapore are GST-rated at 0%. So if you produce your stuff in Singapore but sell it overseas, you don’t have to pay 9% of GST on overseas purchases.
At the same time, if you are dealing with Singapore suppliers who are registered for GST, you pay the 9% GST on the fabric you used for the jeans and on your other supplies.
If you are GST-registered, you can claim back any GST you paid for the goods and services that you use to produce your own. We go into more detail about what counts as a business expense and what doesn’t in our overview of GST.
Thus, registering can reduce a lot of your business expenses by 9%. Let’s crunch the numbers using the actual GST rate:
Cashflow | GST charged | GST claimed | |
|---|---|---|---|
| Sales total | 300 000 | ||
| Sales abroad | 240 000 | ||
| Sales in Singapore | 60 000 | 5 400 | |
| Rent paid | 60 000 | 5 400 | |
| Advertising | 84 000 | 7 560 | |
| Other expenses (office supplies, fuel for business car fleet, software subscriptions, etc.) | 6 000 | 540 | |
| Total | 5 400 | 13 500 | |
| GST balance | 8 100 |
As you can see, although you had to charge your Singaporean clients the 7% of the tax, you still have cut the cost of running your operation by S$6300.
2 You Want to Improve Your Company’s Image
Every company whose annual revenue exceeds S$1 million is required to register for GST. So most companies that are registered have passed that threshold. If you register before that, you would get a small reputation boost.
3 You Want to Help The Government Help You
Every company filing for GST helps the Singapore government to get a bigger pool of data to analyze when making decisions. It helps them to predict their budget more accurately and gives them data to implement changes to the law so businesses are more comfortable in Singapore.
A good example of that would be the addition to GST law of definition of “Prescribed Goods”. Companies that deal in this kind of products no longer have to account for GST themselves, passing that responsibility to the customer. In our overview of how GST works, we talk about it in more detail.
That argument works only if you mean to operate in Singapore for a long time. Otherwise, you just might not be there to reap the benefits, when the changes happen. With the “Customer Accounting for Prescribed Goods” implementation, it took the IRAS about 3 years to crack down on fraud schemes and amend the procedures to suit everyone.
Signing Up for GST To Claim GST on Supplies Is Not Always a Great Idea
If you are subject to the standard GST rate, registering early to claim back the GST you pay on supplies might not be such a great idea. Let’s compare two different scenarios to see why. To make counting simple, let us imagine the GST rate is 10%.
If you don’t charge GST
You are a production company that has 2 GST registered suppliers.
Supply 1 costs you S$20 + S$2 GST = S$22
Supply 2 costs you S$20 + S$2 GST = S$22
You take Supplies 1 and 2 and produce your product — Supply 3. When calculating the price you will charge, you add up the supplies’ prices and then add S$20 on top: S$10 to cover your expenses and S$10 to make money on the sale.
In total: S$22+S$22+S$20=S$64
As a result, the customer pays S$64. Your profit is S$10.
If you charge GST
Supply 1 costs you S$20 + S$2 GST = S$22
Supply 2 costs you S$20 + S$2 GST = S$22
You take Supplies 1 and 2 and produce Supply 3. The mark-up of yours is S$20. You claim back S$4 of input tax, your Supply 3 now costs S$60 instead of S$64. But you then add your own GST to the price, and it becomes S$66.
The customer pays S$66. Your profit is S$10.
As you can see, in the second case your customer pays more but the amount of money you make on the purchase remains the same. In fact, with the additional bookkeeping and accounting burden, you might even make less than S$10 per purchase. This is because you will need to hire more people or give your staff a pay raise to take care of the extra administrative liability: you will have to calculate GST on purchases and sales and file GST reports.
However, it might still be a good idea for you to go for early registration if the cost of running your business is high. For example, you might buy a lot of office supplies very often from GST-registered vendors. Сlaiming back the 7% you paid on those might be helpful.