GST can add value to your business

1. Claiming GST incurred on purchases

When making business-related purchases from suppliers who are GST-registered, businesses have to pay GST. One perk of registering your business for GST is that you can claim credit for taxes paid on such purchases against those collected from sales – this means that the GST incurred from purchases that is not covered by GST collected from your sales can be claimed. This is an especially huge benefit for companies that have high input tax costs.

2. GST incentive programmes

|The Singapore government has devised a number of schemes and programmes to aid in the GST process. One that stands out for SMEs is the Cash Accounting Scheme, which helps their cash flow by improving liquidity.

Under this scheme, SMEs with annual sales of less than S$1 million are allowed to delay the accounting of their output tax, or tax collected from sales upon receipt of payment from customers or clients. This also allows such businesses to claim input tax credits earlier than usual, when supplier invoices are paid. For SMEs with smaller cash reserves, this scheme is particularly helpful in easing their cash flow.

GST may not be suitable for all businesses

However, there could be situations where registering for GST may be more costly, financially or otherwise.

1. Legal obligations

Being registered for GST means your company is legally required to document and file reports to IRAS. This could add to the workload of the administrative team or increase costs to implement the necessary accounting or filing systems.

SMEs with smaller teams may struggle with these new obligations, and in this case, registering for GST might prove more onerous than helpful.

2. Minimum registration period

By law, voluntarily registered businesses must remain registered for at least two years. Business owners should weigh their costs and benefits over the next two years before making a decision.

Some areas to consider include the responsibilities of being GST-registered, and the profile of your suppliers and customers. For example, if your suppliers are GST-registered, it would make sense for you to do the same so that you can claim credit for GST incurred on purchases from them. You should also consider your customer profile carefully, accounting for their general financial background, and how they might react when prices increase once the GST cost is passed down to them.

In sum, do the sums when it comes to GST registration and work out what works best for your business.