GST Rate Increase in Two-Step Approach
The Minister for Finance Singapore has recently announced in the Singapore Budget 2022 that the envisaged GST rate increase will be carried out in a two-step approach:
- From 7% to 8% with effect from 1 January 2023; and
- From 8% to 9% with effect from 1 January 2024.
To prepare businesses on the GST rate increase, the IRAS has an issued EDM and the link can be found here.
Businesses are required to charge GST on their supplies based on the prevailing GST rate as determined by the general time of supply rule, i.e. the time of supply will be the earlier of when an invoice is issued or when a payment is received. However, when a supply straddles across the GST rate change (e.g. 1 January 2023 or 1 January 2024, as the case may be), the transitional rules may apply and affect the GST rate chargeable on the supply.
Supplies that straddle across the GST rate change from 7% to 8%
The above refers to a supply that has one or more of the following events straddle 1 January 2023:
- The issuance of invoice.
- The receipt of payment.
- The delivery of goods or performance of services.
Transitional rules for supplies that straddle across the GST rate change from 7% to 8%
In addition to the date of invoice issuance and payment receipt, the transitional rules consider when the goods are delivered, or services are performed. If the goods are delivered or services are performed (either in part or in full) before 1 January 2023, the supply (either in part or in full) may be charged with 7% GST.
Scenario 1
| Date of invoice: | Before 1 January 2023 |
| Date of payment: | After 1 January 2023 |
| Goods are delivered or services are performed: | After 1 January 2023 |
GST treatment: Even though the invoice is dated before 1 January 2023, the supply would be subject to 8% GST as both the payment are made, and the goods are delivered / services are performed after 1 January 2023.
Scenario 2
| Date of invoice: | Before 1 January 2023 |
| Date of payment: | After 1 January 2023 |
| Goods are delivered or services are performed: | Before 1 January 2023 |
GST treatment: Businesses may elect for the transitional rule and charge 7% GST on the supply as the goods are delivered / services are performed before 1 January 2023.
Scenario 3
| Date of invoice: | Before 1 January 2023 |
| Date of payment: | After 1 January 2023 |
| Goods are delivered or services are performed: | 80% before 1 January 2023 and 20% after 1 January 2023 |
GST treatment: Businesses may elect for the transitional rule and charge 7% GST on 80% of the supply. The balance 20% of the supply has to be charged with 8% GST.
Scenario 4
| Date of invoice: | After 1 January 2023 |
| Date of payment: | After 1 January 2023 |
| Goods are delivered or services are performed: | Before 1 January 2023 |
GST treatment: Businesses may elect for the transitional rule to and charge 7% GST on the supply as the goods are delivered / services are performed before 1 January 2023.
Scenario 5
| Date of invoice: | After 1 January 2023 |
| Date of payment: | After 1 January 2023 |
| Goods are delivered or services are performed: | 80% before 1 January 2023 and 20% after 1 January 2023 |
GST treatment: Businesses may elect for the transitional rule and charge 7% GST on 80% of the supply. The balance 20% of the supply has to be charged with 8% GST.
The above provides a quick overview of the GST rate change from 7% to 8% effective from 1 January 2023. There may also be scenarios where both the payment is made, and the goods are delivered / service are performed in part before 1 January 2023 and in part after 1 January 2023. Such scenarios are more complex, and the guiding principles are covered in the IRAS e-Tax Guide on the 2023 GST Rate Change.
For assistance to perform an analysis on the GST treatment of transactions that straddle across the GST rate change, please contact us and we would be pleased to assist on a separate engagement basis.
Contact Our Tax Specialists for A Discussion
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Edwin Leow Director, Head of Tax edwinleow@sg.cla-ts.com |
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Jennifer Lee Associate Director, Goods and Services Tax Lead jenniferlee@sg.cla-ts.com |
