Revisiting existing GST rules

A number of basic GST rules may need to be revised in view of the impending GST rate increase.

Since the implementation of the Goods and Services Tax (GST) in 1994, there have been frequent changes and updates to the GST legislation, rules and guidelines by the Inland Revenue Authority of Singapore (IRAS) to keep up with the rapid developments in the economy. There are, however, certain rules and requirements that have remained unchanged till now. With the impending GST rate increase to 8% from 1 January 2023 and 9% from 1 January 2024, the concessionary effect on certain rules with quantitative conditions would be diminished and would not render much help in easing the compliance efforts of GST-registered businesses.

We discuss below some of the existing GST rules and requirements that would be worth revisiting. 

GST threshold of S$1,500 in the administrative concession for amending errors in the GST returns

Currently, a GST-registered person is allowed to amend the errors made in past GST return(s) in the next GST return if both conditions below are met:

(i) The net GST amount in error for all the affected prescribed accounting periods is not more than S$1,500; and

(ii) The total non-GST amounts in error for (each of) the affected accounting period(s) is not more than 5% of the total value of supplies declared in the submitted GST return.

The S$1,500 GST threshold was set when the GST rate was 3% (hence, a tax base of S$50,000). With the current GST rate at 7%, a GST error with a tax base exceeding S$21,429^[1] would not meet the condition for the above administrative concession and needs to be adjusted using the GST F7 (Disclosure of Errors on GST Returns) form. This value would be further reduced when the GST rate is 9% with effect from 1 January 2024 (i.e., only a tax base of S$16,667^[2] is required for the GST amount in error to exceed S$1,500).

Hence, to align the concession with the eventual GST rate of 9%, the threshold for the GST amount should be revised to at least S$4,500 (i.e., S$50,000 x 9%).

Format of tax invoices

A GST-registered person is required to issue valid tax invoices for standard-rated supplies made to its GST-registered customers and maintain valid tax invoices issued by its GST-registered vendors to substantiate its input tax claims.

There are specific contents required of a valid tax invoice. However, due to space constraint on the invoice or limitation in a shared global or corporate invoicing system, it is common that certain contents could not be included in the tax invoices issued.

As an administrative concession for GST taxpayers that undertake the GST Assisted Self-Help Kit Review or the Assisted Compliance Assurance Programme review, the IRAS allows them to not amend their past GST returns or reissue the tax invoices for the following missing details, if they maintain other documents such as purchase order or confirmation, purchases contract or agreement and evidence of payment:

(i) Total amount payable excluding GST

(ii) Total amount payable including GST

(iii) Rate of GST

(iv) Address of customer

(v) GST registration number of supplier

If the tax invoice is denominated in a foreign currency, in addition to the total GST amount, items (i) and (ii) above must also be converted into Singapore dollars equivalent amounts and each shown as a separate amount therein the tax invoice.

The above details are not crucial with respect to the validity of the tax invoices for the following reasons:

• We believe the IRAS should only be concerned with the Singapore dollars equivalent GST amount as it would want to ensure that the supplier has correctly accounted for the GST amount as output tax in its GST return and the purchaser has correctly claimed the same GST amount as input tax in its GST return. In addition, item (ii) above is not even required for GST reporting purposes. Hence, the IRAS should also consider allowing GST taxpayers to convert and show in their tax invoices only the foreign currency denominated GST amount into Singapore dollars equivalent.
• There is only one standard rate of GST in Singapore (currently at 7%) unlike some other countries where there are multiple standard VAT/GST rates for different products and services. Hence, whether the rate of GST is indicated in tax invoices should not be critical.
• The address of the customer as well as the supplier’s GST registration number could be easily obtained from other sources, for example, through a GST-registered business search on the IRAS’ GST website and customer’s website, and have no impact on the recoverability of the GST as well as the amount to be claimed. 

In this regard, the above administrative concession should be extended to all GST-registered businesses so as to reduce the time and efforts needed to reissue or request for revised tax invoices. Alternatively, a review of Regulation 11^[3] of the GST (General) Regulations could be carried out and appropriate amendments could be made to the said Regulation to streamline the required contents of a tax invoice by removing certain non-essential contents such as those mentioned above.

Threshold of S$40,000 per month in the De Minimis rule

Generally, a GST-registered person is allowed to claim all its input tax, including input tax attributable to the making of exempt supplies, at the end of any prescribed accounting period or a longer period if the De Minimis rule is satisfied.

The De Minimis Rule is satisfied if the total value of all exempt supplies made does not exceed:

(i) An average of S$40,000 a month (hence, S$120,000 for a quarter); and

(ii) 5% of the total value of all taxable and exempt supplies made in that period.

While the 5% of total taxable and exempt supplies threshold is reasonable, the threshold of S$40,000 per month would appear to be too low for some companies to avail themselves to the benefit of claiming their input tax in full where they are predominantly involved in making taxable supplies.

To simplify the rules and ease of GST compliance, it may be worth considering removing the S$40,000-a-month condition and solely apply the 5% rule to determine if the De Minimis rule is met. This removal is also consistent with the current regulation 35 test (which is also based on one criterion, i.e., that the value of non-regulation 33 exempt supplies does not exceed 5% of the value of total supplies) to determine if input tax directly attributable to regulation 33 exempt supplies can be claimed.

Reporting of zero-rated purchases in GST returns 

The reporting of zero-rated purchases (i.e., supplies procured from GST-registered vendors but taxed at 0% GST) often causes confusion for GST-registered businesses and results in errors made in GST reporting, such as the incorrect claiming of input tax on zero-rated purchases and incorrect inclusion of non-taxable purchases (being goods or services procured from local non-GST registered vendors) in the GST returns. In addition, GST-registered businesses are usually required to set up a separate tax code to record zero-rated purchases and provide training to their accounts payable team on the use of the zero-rated purchases tax code.

It is worth considering if the reporting of zero-rated purchases should be discontinued for a few reasons. Firstly, the non-reporting of zero-rated purchases does not have any tax impact. Secondly, if zero-rated purchases are not required to be reported as taxable purchases, it is easier for GST-registered business as well as the IRAS to verify the accuracy of the amount of input tax claimed by simply multiplying the value of taxable purchases (excluding value of imports under special scheme) with the percentage of GST and compare this computed amount with the amount of input tax claimed. If the amount of input tax claimed is more than the computed amount, it could suggest an over-claiming of input tax. 

With the introduction of new GST regimes such as reverse charge and electronic marketplace operators, there are now more GST reporting requirements. Therefore, waiving the reporting of zero-rated purchases should offer some administrative relief for GST-registered businesses.

The co-authors of the article are Danny Koh, Partner, Indirect Tax — Goods and Services Tax from Ernst and Young Solutions LLP and Jessie Loh, Director, Indirect Tax — Goods and Services Tax from EY Corporate Advisors Pte. Ltd.