“What? GST can be voluntary meh? I thought only businesses with more than S$ 1 million revenue can register for GST?”
This is the typical response I get when I advise small business owners to voluntarily register their business for GST (Goods and Services Tax). In this article, I will dispel some of the myths regarding GST, and why you might want to voluntarily become GST registered.
Myth 1: GST Registration is only for Big Companies with Revenue > S$ 1 million
If annual revenue exceeds S$ 1 million, then yes, it is compulsory to register for GST. This is required by law, and you have no choice.
But if your annual revenue is below S$ 1 million, you can still register for GST on a voluntary basis. Therefore, you can choose to do it if it makes business sense, though it is not required.
To hear it from the horse’s mouth, please visit the IRAS (Inland Revenue Authority of Singapore) website:
Myth 2: GST Registration is costly because I must USE Expensive Software and hire professional Accountants
Ahh … the wonders of technology.
In my grandfather’s time, accounts were kept using pen and paper. You need full-time accountants to work out the accounts and literally write them into ledger books and then keep them for future reference (hence the phrase “bookkeeping”). Calculations were done by hand, either on paper or using the most advanced calculator available to his generation, the abacus.
In my father’s time, things got a bit easier. Accounts were still kept in books, but an invention called the electronic calculator made big calculations much faster and reduced the number of accountants needed.
When I started my business, things became even more advanced. Personal computers came along, and so did spreadsheets and accounting software. Accounts were no longer kept on physical books but on computers.
GST-compliant accounting software cost several thousand dollars, but all calculations were automated and reports can be generated with a few clicks of the button. I no longer needed to have a full-time accountant, but I still hired an outsourced, part-time one just to check that the entries were correct and to do tax filing.
Now, accounting software has moved from my personal computer to the “cloud”. Software-as-a-service (SaaS) providers such as Quickbooks and Xero can now provide almost everything a small business needs for less than $500 a year. You no longer have to pay thousands for accounting software, and you get free upgrades for life as long as you pay the subscription fee. And you still don’t need a full-time accountant.
I personally use Quickbooks Online, and for my bigger businesses I still use a part-time accountant for GST filing just because the volume of transactions is much higher, so I do need a professional to make sure things are in order.
But for my small part-time business, I do all of the GST reporting and filing on my own, because there are less than 30 transactions a month which involve GST. Quickbooks Online automatically calculates the GST reports I need for filing purposes.
Therefore, my entire running cost for GST compliance is my Quickbooks subscription, which is less than $500/ year, and which is a sunk cost I am paying for anyway even before I got GST registered. GST-compliant accounting software no longer costs the thousands of dollars it used to.
Myth 3: GST Reporting is Complicated
Not true. The complicated part is in generating the reports and getting the right amounts to submit. Even if you use spreadsheets to keep your books, you’ll still need highly advanced accounting knowledge to compute the numbers accurately.
But with Quickbooks, I am able to automatically generate a GST Report with the amounts I need to fill in each of the corresponding boxes in the GST Return.
With the GST computation handed to me on a platter, all I need now is to log in to the IRAS website with Corppass and follow the steps online to file my GST Return. And with a GIRO arrangement set up with IRAS, the refunds get automatically credited back to my company bank account.
Advantages of gst registration
Many businesses get GST registered to gain a tax advantage.
What you must first understand is that becoming GST registered allows a business to do 2 things:
- To charge GST to its customers (i.e. output GST)
- To claim GST charged by its suppliers (i.e. input GST).
Every quarter, you’ll need to file your GST returns, and pay IRAS the difference between the output GST you collected and the input GST you paid. If your input GST exceeds your output GST, then IRAS will refund the difference to you as well.
For example, if you charged a total of $10,000 in GST to your customers and paid a total of $8,000 in GST to your suppliers, You don’t need to pay IRAS $10,000 and then wait for IRAS to return $8,000 to you. You only need to pay IRAS the difference of $2,000.
By the same token, if your input GST was $12,000 and output GST was $10,000, IRAS will refund the shortfall of $2,000 to you.
Here are some examples where voluntary GST registration may be beneficial.
Small company serving Mainly GST-registered corporate customers
Let’s use an example of a logistics company providing warehousing and delivery services to corporate clients which are GST registered.
ABC Logistics incurs the following costs every month:
Truck Rental: $10,000 + GST $700 = $10,700
Warehouse Rental: $20,000 + GST 1,400 = $21,400
It only has one customer XYZ Company, which is GST registered. ABC bills XYZ a flat rate of $40,000 a month.
If ABC Logistics is not GST registered, it will have to absorb the GST it pays on its costs (i.e. input GST), but is unable to charge XYZ Company GST (by the way, it is illegal to charge GST to your customers if you are not GST registered).
ABC’s monthly profit is as follows:
a) Revenue = $40,000
b) Truck Rental $10,000 + GST $700 = $10,700
c) Warehouse Rental $20,000 + GST $1,400 = $21,400
d) Net Profit = $7,900 (d = a – b – c)
Now, at $40,000 monthly revenue, ABC’s annual revenue is only $480,000, well below the $1,000,000 threshold for compulsory GST registration.
But if ABC does voluntary GST registration, its monthly profit is now:
a) Revenue = $40,000
b) Truck Rental $10,000
c) Warehouse Rental $20,000
d) Net Profit = $10,000 (d = a – b – c)
Thus, by voluntarily registering for GST, ABC’s net profit increased from $7,900 to $10,000.
But you may ask, won’t XYZ be unhappy about this? Instead of $40,000, it now has to pay an additional $2,800 in GST?
Well, XYZ won’t be unhappy, because as mentioned in the beginning, it is already a GST-registered company. This means it can easily claim the $2,800 as input GST back from IRAS, just as ABC is able to claim its input GST on trucks and warehouse rentals.
Therefore, in the examples shown above, GST is a non-factor, because whatever GST you collect or pay will all go to IRAS anyway.
Investment Holding Company
Another type of company that does voluntary GST registration is an investment holding company (IHC) that buys commercial properties for the purpose of generating rental income.
Most sellers of commercial properties are GST-registered, so they have to charge GST when they sell the property. If the IHC buys an office, say for S$ 1 million, the GST charged will be an additional 7% x S$ 1,000,000 = S$ 70,000.
By voluntarily registering for GST, the IHC can claim back $70,000 back from IRAS once the current GST reporting quarter ends, and the actual refund will take place roughly 45 days later. Otherwise, it will have to absorb the $70,000 GST as a direct cost, which is not a small sum.
Of course, when it rents the property, it also has to charge GST to its tenant. But that is common practice in the commercial space rental industry, and many tenants are also GST registered anyway.
GST is only applicable for goods and services consumed in Singapore. You do not need to charge GST for goods that are exported, provided there is proper export documentation to support the GST zero-rating (e.g. Customs export permit, airway bills).
However, if your business is based in Singapore, it is likely to incur expenses such as the rental you pay for warehousing your goods, and these may attract input GST. So getting the business GST registered allows you to claim a refund of the input GST, while not adversely affecting your customers (since most are located overseas, they don’t need to pay GST anyway).
Furthermore, the Singapore government has started forcing overseas software vendors to start charging GST to their Singapore clients. This can be a game changer for small e-commerce companies operating mainly in overseas markets that previously didn’t need to pay GST.
One of my businesses sells products mainly to US customers through Amazon.com and also directly through my own website hosted by Shopify.
Amazon takes a 15% cut on all sales through its platform, and I also pay Amazon for its pay-per-click advertising services.
Shopify charges a monthly website hosting fee. Credit card payments are also processed by Shopify Payments, and a processing fee plus currency conversion fee is also charged for every dollar received.
Traffic to my Shopify web store is driven mainly by advertising on Google and Facebook.
Shopify and Facebook had been charging GST for a long time, but I never bothered about it because the total amount was small. However, in January 2022, both Google and Amazon started charging GST as well.
This was a game changer for me as Google and Amazon combined ate up a big chunk of my costs. Therefore, I applied for voluntary GST registration and received my approval from IRAS a few weeks later.
Though my company is doing only about $250,000 in annual sales, GST registration enabled me to get about $6,000 in GST refunds a year.
There is a catch though. To remain GST registered, you must make taxable supplies within 2 years i.e. you must sell something to customers in Singapore and charge GST for it. If at least a small part of your business comes from Singapore, then it’s not a problem. But if 100% of your business is from overseas, then this is something you need to think about.
DISAdvantages of gst registration
But GST registration will not benefit all types of companies. Generally, if most of your revenue is generated from non-GST registered entities, then it may not make sense to do voluntary GST registration.
Take, for example, a small B2C (business to consumer) business selling mainly to consumers. Registering for GST allows the business to claim input GST, but also compels it to charge GST to its customers. Since consumers can’t claim back the GST, this becomes a cost increase for them.
While some of its costs (not all costs have input tax e.g. salaries) can be reduced, its price also has to increase by 7%. This may make its products less competitive and hurt its revenue.
But if the business has pricing power and has the confidence that revenue will not be affected by the increase in price, then voluntary GST registration is still a viable option.
Knowledge is power. In business, it is also money. It’s far easier to save money than to increase revenue. Understanding the GST system and doing voluntary GST registration is one way you can possibly save thousands of dollars in taxes each year.
** GST is 7% at the time of writing. As announced by the Singapore government, it will increase to 8% in 2023 and 9% in 2024. **