This is a perennial question that businesses may be asking themselves besides seemingly more compliance work relating to GST requirements, additional costs relating to operational or accounting systems or work flows to ensure GST compliance, potential customer attrition in competitive industry from higher GST inclusive price vs competitive non-GST prices and the incessant new GST rules from OVR and low values goods (wef 1 Jan 2023).
However, the key in this question is, is it a choice in the first place. Many businesses do not realise that they are in fact liable for GST registration but are not aware of the mandatory GST registration rules. We have discussed specifically for online sellers in our earlier article GST pitfall: Online Seller dated 9 November 2020. In general, GST is mandatory for businesses whose total revenue* has already exceeded S$1m (retrospective test based on last calendar year ie for year 2021 the period for retrospective test is Jan to Dec 2020) or total revenue will be exceeding S$1m in the next 12 months (on-going prospective test has to be done monthly for the next 12 months). The other option of not registering for GST when you are deemed required to is a very costly option – potentially of a fine of up to $10,000 and a penalty of 10% of the GST that you are supposed to collect and pay to IRAS from the date of your deemed registration. The deemed GST due is usually the bigger amount as IRAS will back dated the amount collectible. A renovation business owner Mr CWK has paid a total of $504,500.80 of deemed GST for 4 years of back dated period from 2006 to 2010 and a fine of $4,500.
The next golden question is then, if a business does not fall under the mandatory GST registration rules, would it make sense for a voluntary GST registration. It is not uncommon that a business to go for voluntary GST registration and indeed many businesses go for GST registration even though they are not mandatorily required to do so. There is value and advantage in GST registration and they do so for the following reasons:
- Businesses with major export sales
Trading companies with majority of overseas customers would find value in a GST registration as it is likely that they will be in a Net GST receivable position every quarter. This is what we called a net exporter situation due to export sales are treated as GST standard taxable supplies but zero rated while imports are GST paid at customs. In reality, these businesses has to pay import GST first at customs clearance before they can submit a GST return to claim back the GST paid at the end of the quarter. Some of these trading companies would even elect for a monthly GST submission in order to alleviate their cashflows.
- Businesses with growth
As GST registration is a self-assessment exercise to be performed by businesses and it is the responsibility for the taxpayer to register for GST under the prospective and retrospective rules, some businesses has elected to avoid the constant administrative hassles to do periodic assessment. It is common for high growth companies to elect for advance and voluntary GST registration way in ahead of its revenue as the S$1m threshold is actually not a very high hurdle. This is in consideration of front loading the workflow, organisational restructure needed for GST compliance as it is a not a question of to register but when. The other main consideration is on reputation and financial risk for oversight of non-registration that will inadvertently lead to penalty and fines as well as adverse publicity.
- Cost management
GST registration requires business to collect and account for GST on sales. It also accords businesses the flexibility to recover input GST paid on purchases or expenses. For businesses that deal predominantly GST registered suppliers, it will provide an option for better cost management to recover some of the input tax that are otherwise not claimable as a non GST registered businesses.
- Induced internal controls
GST registration requires a more detailed and robust invoicing, receipts, expenses and payments tracking processes which inevitably institutes within a business the requirement for a certain specified controls for GST compliance. Some business owner find it challenging to autonomously implement internal controls and the NO option of mandatory GST registration provides the discipline to set a base level of internal controls from the start.
- Perceived prestige of GST registration
It is an unspoken understanding that a business with a GST number is part of an ‘elite’ one million dollar club that gives the image of ‘I’m not a small player’. Some established businesses would prefer to deal with business of certain size and track record and the additional compliance hassles is just a small price to pay.
As every businesses are unique and even two competing business of the same industry has it unique financial, business and legal nuances, it would be beneficial that one take an assessment where you are in this.
*GST concept of supplies is different from revenue, but for simplistic comparison, majority of revenue are supplies except those falls under exempt supplies ie sale and lease of residential property, financial services etc.