Page 19 - Budget-2018-Highlights-en-flip

GOODS AND SERVICES TAX
Proposed GST Rate Increase
Current
The prevailing GST rate is 7%.
Proposed changes
To support recurrent needs for healthcare, security
and other social spending, the Government plans to
raise GST by two percentage points from 7% to 9%.
Effective date
The GST increase will take place sometime in the
period from 2021 to 2025, likely to be earlier rather
than later in the period, and is dependent on the
state of the economy.
Comments
With the impending GST rate increase, businesses
(both GST-registered and non-GST registered)
need to start planning and consider the following
issues. There is no indication at this stage whether
the planned 2% rate increase will be in one go and in
two stages.
 Updating systems and compliance
 Accounting systems need to be updated to
reflect the new GST rate and ensure the
GST logic is calibrated accordingly. Tests
are also necessary to ensure the correct
GST rate is applied to the transactions
taking into consideration any transition
rules before the targeted implementation
date.
 Updating invoice template, cash register,
receipting system and price display to
reflect the new GST rate.
 Arrangements that straddle between the
two GST rates, e.g. receipt of advance
payments and non-refundable deposits,
services stretching over the pre-and post-  Other concerns
GST rate change, and retention payments
need to be reviewed to ensure the
appropriate GST rate is applied.
 Direct and indirect cost impact
 Partial exempt traders such as residential
property developers, financial service
providers, investment precious metal
traders and businesses with sizable trading
exempt supplies will be greatly impacted
by the proposed GST rate calibration
considering that irrecoverable GST
incurred would be 2% higher. There is a
need to consider whether such additional
costs should be passed on to end-
consumers.
 Most GST-registered businesses would
face higher operating and non-operating
costs on irrecoverable GST tagged to
certain business expenses (e.g. those
disallowed or non-business related
expenses) due to the two percentage
points increase.
 Greater emphasis on managing GST risks
and improving compliance is needed
considering any GST non-compliance (e.g.
insufficient shipping documents maintained,
incorrect GST treatment on supplies and
purchases, etc.) would result in an
exposure to higher penalties imposed by
IRAS. To mitigate such risks, much more
frequent internal staff training on GST-
related issues is recommended.
 Businesses which are typically in a GST
refund position may face tighter cash flow.
 GST risk management
 With a higher rate of GST charge, GST-
registered businesses would likely place
greater emphasis on managing GST risks
as part of their overall business strategy
from the start of business contract
negotiation rather than at a later date. The
collaboration between process owners
from the sales, operations and finance
team would be an important collective
effort to ensure GST risks are managed
proactively at entity, transaction and GST
reporting levels.
 Non-GST registered businesses (e.g. SMEs,
not-for-profit organisations, etc.) should
consider voluntary GST registration as an
option in view of the rate increase and
higher irrecoverable GST costs via a cost-
benefit analysis.
BUDGET 2018 HIGHLIGHTS | 17