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GST at 25: What do businesses need to know and do?
ON Apr 1, 2019, the Goods and Services Tax (GST) system in Singapore turned 25 years old. From a modest collection of S$1.5 billion in 1994, the GST has grown to be the second largest contributor to tax collections after corporate income tax, with the Inland Revenue Authority of Singapore (IRAS) collecting about S$11 billion in 2018.
While the GST continues to evolve and contribute to our national growth, business leaders need to understand indirect tax changes across the globe, and how these changes may shape the GST system and impact businesses in Singapore. At a global level, the PwC global tax policy group has identified three distinct indirect tax trends :
- Growing importance of indirect taxes, and in particular GST or VAT (value added tax);
- Taxation of the digital economy; and
- New technology-based, real-time GST/VAT tax reporting obligations.
GROWING IMPORTANCE OF INDIRECT TAXES
The GST/VAT has now been implemented in over 165 countries, having doubled in the last 25 years.
Even the Middle Eastern countries, which have traditionally relied on oil revenues, have implemented GST/VAT in recent years, with Bahrain set to join the club in 2019.
Elsewhere, notably in China, India and Brazil, significant GST/VAT reforms are underway to improve enforcement, effectiveness and efficiency in collecting their indirect taxes. This is echoed in Singapore where the government has proposed a rate increase to 9 per cent some time after 2021, which is estimated to add an additional S$3.2 billion to the tax coffers.
TAXATION OF THE DIGITAL ECONOMY
With the imposition of GST on imported services from Jan 1, 2020, Singapore joins more than 50 countries that now collect GST/VAT through the registration of online overseas service providers.
While this suggests that Singapore-based businesses are not burdened with the new tax, they would still have to comply with the rules that apply in the countries to which they supply their online services.
The next area of focus for taxing the digital economy is finding the right mechanism to collect GST/VAT on low-value goods purchased via the Internet. Australia took the first step by imposing GST on the import of low-value goods from July 1, 2018, whilst New Zealand and Switzerland are introducing or have introduced legislation for similar regimes to take effect in 2019.
Singapore has said that it is monitoring the developments closely and is expected to introduce such a rule after it beds down the rules on digital services.
NEW TECHNOLOGY-BASED, REAL-TIME REPORTING OBLIGATIONS
GST/VAT practitioners are becoming familiar with a long roll call of compliance obligations across the globe, such as real-time reporting, sales and purchases reporting, mandatory e-invoicing, and standard audit file for tax (SAF-T). Singapore already allows for e-invoicing, recommends the use of SAF-T and is moving towards online sales and purchases reporting.
Every new reporting obligation requires businesses to consider new thinking and resources on how to comply with the requirements. With greater volumes of information and advanced analytics, governments are increasingly able to identify filing errors and impose penalties for incorrect reporting of GST/VAT.
WHAT CAN BUSINESSES DO?
It is probably fair to say that businesses are not as engaged on indirect tax matters as they are with corporate income tax, particularly in Singapore where the GST rate of 7 per cent is still perceived to be relatively low. Ignoring indirect tax is increasingly risky given the potentially huge size and scope of exposure in a fast-paced and constantly changing environment.
So what can the business do to address the risks of costly errors and reputational damage?
1) Understand the impact of indirect tax in real time
Knowing the rules in Singapore does not translate to understanding the rules in another country. If you do not know the different rules in place in each country you sell, or you do not have the right people, processes or systems in place to manage the different compliance requirements, controlling your indirect tax exposure is an incredibly daunting and nearly impossible task.
There are subscription services and tools that can help companies keep track of indirect tax regulations around the world on a daily basis, calculate the total indirect tax under management in each country, model cash flow and actual tax costs, identify potential areas for improvement or optimisation, and track the status of filing obligations. The key is to first map your indirect tax footprint and its impact, and then commit to understanding in real time what changes are coming your way and when and not be caught out by surprises.
2) Have clean data and processes
A growing number of tax authorities including the IRAS are requiring businesses to transfer more and more tax data to mitigate tax fraud.
Data analytics can help to give deeper insights into the business data and identify errors and outliers for further investigation before it is provided to the tax authorities. In this respect, tax authorities are already ahead of most businesses in the use of data analytics. Good analytics coupled with dashboards and reporting capabilities tailored to business needs are critical to equip businesses with insights to stay in control over the data they possess and adapt to new reporting obligations as they arise.
3) Adopt a strategic planning approach towards indirect tax
Navigating the transformation of the global indirect tax environment gives rise to an immediate need for a multinational business to align its indirect tax footprint with its data to make evidence-based decisions.
This is not only to ensure that the right amount of GST/VAT is paid in the right place and on time, but also to check that the relevant data is being captured and the right business decisions are made about where to deploy capital and resources to evolving business models and structures so as to minimise risk and maximise return on investment.
In conclusion, it does pay to keep tabs on GST/VAT given its growing importance in tax policy and administration.
As the GST in Singapore continues to play its part in nation building, businesses should look at the global indirect tax environment and work to control it more effectively through greater access to timely information and analytics to assess the impact of new compliance requirements on business models.
- The writer is Asia Pacific Indirect Taxes leader at PwC