GST is the most recently introduced of all the major taxes in Singapore, only coming into force in 1994. The rate has since gone up several times from the initial 3% to the current 7%. From 1 January 2023, the rate will be increased to 8%. It will be further increased to 9% from 1 January 2024. However, these rates are still relatively quite modest in comparison to rates imposed overseas.
The general design of GST in Singapore follows the “ideal model” of a consumption tax with a low rate and broad base. There are generally very few exemptions from GST, with the most notable ones being those relating to finance in some way. Instead of directly granting exemptions to specific goods or services, the Government has chosen to make transfer payments in situations where some form of relief from the impact of GST might be needed. Thus, GST is still levied at the standard rate on necessities, though financial support is provided to those who need it to defray these costs.
GST operates on the principle that the final consumer should bear the incidence of the tax. At each stage of the supply chain, as each party “adds value” and passes on the product to the next party, GST is both collected and refunded. A party in the supply chain is charged GST by its supplier. When making a supply to the next party in the supply chain, the first party is required to charge GST on that supply. The first party may “claim back” the GST which it incurred in purchasing its raw materials as “input tax”. Thus, this process continues down the line, where each party pays GST on its raw materials, but may claim back that same amount in input tax. When the final product or service reaches the final consumer, the consumer does not make any supplies to anyone else and will not be able to claim input tax, thus bearing the full amount of the GST paid on its supply.
There are three relevant categories of supplies for GST: standard-rated, zero-rated and exempted supplies. As noted above, the Singapore system of GST has an extremely broad base, with very few exemptions. Thus, most goods and services will be standard-rated, meaning that they are subject to the “standard rate” of 7%. While in the case of both zero-rated and exempted supplies, no GST will have to be charged on the supplies, there is an important difference. Input tax may be claimed for zero-rated supplies, but not for exempted supplies. Thus, a party in the supply chain who is not the final consumer would be able to claim back the GST incurred in purchasing its raw materials if the supply it makes is zero-rated, but would not be able to do so if the supply is exempted. Generally, exported supplies will be zero-rated since the intention of a GST system is to tax domestic consumption and not exports.
One of the main legal reference texts for GST in Singapore is Halsbury’s Laws of Singapore (Vol 16: Revenue and Taxation- Other Taxes), (2018) (LexisNexis), which I worked on the GST chapter with Liu Hern Kuan in 2018.
Other articles and publications relating to GST which I have worked on in recent years include:
- “Proposed Reforms to Singapore’s Goods and Services Tax for the Digital Age” (2019) 93(5) Tax Notes International 521-530 (With Liu Hern Kuan)
- “GST Transfers of a Going Concern”, Lexis Practical Guidance- Singapore Tax, (2018)
- “GST Contract Review”, Lexis Practical Guidance- Singapore Tax, (2018)