This article was contributed to and first published in The Business Times on 9 February 2022.
With the product end of the business often dominating much of management’s attention due to disruptions from Covid-19, the tax function (much less a GST rate hike) is often passed over in view of more pressing day-to-day concerns. This mindset of tax being a secondary concern needs to change and the upcoming rate hike may well be the impetus needed for businesses to take a closer look at the impact of the GST on their operations and the state of their GST compliance. Here are some reasons why.
Growing importance of GST
The anticipated new GST rate of 9 per cent could likely lead to the GST becoming the next largest contributor to our tax coffers, after corporate income tax, in the near future. Its contribution can only grow over time given the broad tax design of the GST system and recent developments to bring more imported goods and services within scope of the GST.
A logical conclusion from this is that we can expect increased scrutiny by the tax authorities on GST compliance going forward.
Automation of tax processes the way forward
Businesses often do not fully appreciate (until they are audited) that GST errors can be very costly. With the tax authority able to claw back up to 5 years’ worth of understated tax liability from businesses, the impact of past and current errors coupled with penalties can make a serious and unexpected dent to the bottom line, especially if transactional volumes are large.
A clear way forward is the adoption of technology to automate the tax compliance processes to minimise errors. Despite government initiatives to support productivity and automation in recent years, tax compliance has largely remained a manual process. Resource-starved finance/tax functions often grapple with the challenge to do more with less (headcount). As a result, the barrier to change is often inertia. A good first step for businesses is to start identifying current pain points and weaknesses in the process and exploring which aspects can be automated, and how.
Rise of e-commerce and developments in international indirect tax space
E-commerce has enabled businesses to expand to overseas markets more easily. Governments have therefore reacted by introducing rules to ensure that consumption in their countries is taxed in the same way as domestic purchases. Many countries and regions such as the United Kingdom, the EU, Australia and New Zealand now require overseas service providers who supply digital services or low-value goods to consumers in their respective countries to register for VAT or GST and account for such VAT/GST collected.
What this means is that the need to manage indirect tax compliance for multiple jurisdictions may become more common for businesses who sell internationally. The challenge is keeping up to speed with the tax rules in the foreign jurisdiction on top of one’s domestic tax obligations, exacerbating an already onerous task for businesses.
As it’s said, knowing is half the battle. The other half is just as important and, as far as GST is concerned, there is no better time to take action than now. In particular, business owners should look into how the GST could impact their business and take the necessary steps to prepare for the upcoming hike.
KPMG in Singapore partner, head of tax, Ajay Kumar Sanganeria:
“Singapore Budget 2022 is aimed at bringing individuals and businesses forward ensuring that no one is left behind as Singapore charts a new way ahead. In this spirit, it is no surprise that the Finance Minister’s speech started with a targeted S$500 million support for vulnerable sectors and businesses in Covid-19. It will help SMEs and businesses in the F&B and aviation industries navigate the nation’s transition from a pandemic to endemic reality.”
OCBC head of treasury research and strategy, Selena Ling:
“Businesses will get some extended support, especially SMEs, but foreign worker tightening measures will force companies to feel greater urgency to speed up efforts to become manpower-lean and accelerate technology adoption.”
PwC’s response to Singapore Budget 2022:https://www.pwc.com/sg/en/tax/singapore-budget-2022/response-to-singapore-budget-2022.html
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