Many of us have heard about the Goods and Services Tax (GST) rebates being given out but how much exactly do we know about the business side of GST?
GST is the tax paid as a result of sales made by companies. In economic terms, GST is an indirect tax on goods and services sold for domestic consumption which in turn contributes to the government revenue to be used to purchase goods and services that can boost welfare in the country. As an SME owner, these are some of the important information with regards to being GST-registered that you should take note of!
If your company’s annual turnover is more than S$1 million dollars in the past 12 months, it is mandatory to be GST registered.
Your company is not obligated but should still be registered if you expect your taxable turnover to be more than S$1 million dollars in the next 12 months, within 30 days of your forecast, and be registered on the 31st day from the forecast date.
Of course, you should also have documented proof to support the forecast expectations. Typical contracts and agreement or any form of documentation (within the past 12 months) that shows a rising trend in the turnover of the company, or any statements that were already close to S$1 million.
If the assessment is unpredictable because it is based on business plans or sales targets, it might be better to wait and see before you register for GST!
As an SME owner, one important part of maximising profits would be to reduce your cost and one easy way is to claim the GST that the company has spent as part of it’s supplier payments (also known as input tax). These goods should be used for your business and you should have proper tax invoices to prove your purchases and the amounts. There are specific conditions for claiming your input tax so make sure you fulfill the requirements!
Being GST-registered also gives off the impression that your company is established and it would help to boost credibility amongst your customers!
Being GST-registered is a complex decision to make because there are many factors to take into consideration. There are more responsibilities that have to be undertaken for accounting purposes. This could lead to increased administrative efforts by the accounting department or maybe the need to hire more employees to handle accounting.
There might also be a decrease in your normal retail customers if your price increase is too huge. Your price would have to increase by 7% but if your customers are also GST registered companies, they would be able to claim the GST they paid to purchase your goods and services.
Despite the fact that there is a lot of administrative work to be done after you get GST-registered, it is worth noting that key benefits are present in lowering your cost of production and promoting your business as an established and trustworthy company!
If the amount of money your business would save from the cost of production is more than the profit you might lose when some of the retail customers do not purchase due to the increase in 7% GST, registering for GST would benefit your business more!