The onus of accounting for output tax may fall on buyers

GST-registered businesses should take note of situations where the buyers are required to account for GST output tax to ensure compliance.

The onus to account for output tax for goods and services tax (GST) on standard-rated supplies made generally lies with the suppliers of the goods sold or services rendered. However, there are certain situations where the GST-registered buyers are liable to account for the tax instead. These situations are commonly, or may be, overlooked by the GST-registered businesses as they are not supplies made in the normal course of their businesses. 

In this article, we discuss the areas where GST-registered businesses should take note of to ensure that they fully comply with the requirement to account for GST output tax when they make business purchases of goods.

New requirement: reverse charge on imported low-value goods 

GST-registered businesses that are not entitled to claim input tax in full because they are partial exempt or engaged in both business and non-business activities are required to account for GST output tax on imported services with effect from 1 January 2020 under the reverse charge (RC) regime. 

With effect from 1 January 2023, this requirement to perform RC is also extended to the purchases of low value goods (LVGs), except for purchases that are directly attributable to taxable supplies (this exception however does not apply to business prescribed with a fixed input tax recovery rate or special input tax recovery formula that is applied on all its input tax claims). This includes LVGs purchased from local and overseas suppliers, electronic marketplaces or redeliverers, regardless of whether they are GST-registered.

Specifically, LVG refer to goods which at the point of sale: 

• Are not dutiable goods, or are dutiable goods but payment of the customs duty or excise duty chargeable on the goods is waived under section 11 of the Customs Act 
• Are not exempt from GST (e.g., investment precious metals) 
• Are located outside Singapore and are to be delivered to Singapore via air or post; and each item of the goods has a value not exceeding the import relief threshold of S$400 

Hence, with effect from 1 January 2023, when an affected GST-registered business purchases LVGs that are imported into Singapore via air or post, it would have to account for GST output tax at the prevailing GST rate (i.e., currently 8% and will be increased to 9% with effect from 1 January 2024) on the value of the LVGs in the GST return period based on the earlier of the date that the supplier’s invoice is issued or payment is made to the supplier. As a concession allowed by the Inland Revenue Authority of Singapore (IRAS), businesses may use the account posting date of the purchase, if this method is consistently applied for all GST returns. The GST-registered business would be able to claim the same amount of GST as input tax subject to its usual input tax recovery rate or formula. 

Customer accounting on prescribed goods

Customer accounting was implemented with effect from 1 January 2019 and requires GST-registered businesses to account for GST on purchases of certain prescribed goods. The aim is to deter fraud schemes where the seller absconds with the GST collected while the buyer claims the input tax from the IRAS, resulting in tax leakage for the IRAS. 

Specifically, customer accounting applies to prescribed goods such as mobile phones, memory cards and off-the-shelf software. Customer accounting only applies to the local taxable supply of such prescribed goods with a GST-exclusive value exceeding S$10,000. 

In this connection, when a GST-registered business procures prescribed goods from a GST-registered seller where the value (excluding GST) exceeds S$10,000, it would be required to inform the seller that it is GST-registered and hence, not required to pay GST on the supply to the seller. The seller is required to provide a tax invoice with the following details in addition to the required contents of a valid tax invoice: 

• The buyer’s GST registration number
• Either of the below statements: 

i. “Sale made under customer accounting. Customer to account for GST of S$X.” 

ii. “Customer accounting: Customer to pay GST of S$X to IRAS.”

The GST-registered buyer is required to account for GST output tax on the value of the prescribed goods on behalf of the seller, based on the normal time of supply rule, which is the earlier of payment made to the seller or date of issue of invoice by the supplier. At the same time, being the buyer of the prescribed goods, the GST-registered business can claim the GST as input tax subject to the normal input tax recovery conditions.

Deemed supplies relating to goods given away, transferred or put to private use for free 

Where goods purchased for business are permanently disposed of or transferred for no consideration, it constitutes a deemed supply of goods. In addition, if goods purchased are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, it constitutes a deemed supply of services.

The above deeming provisions, which are essentially anti-avoidance provisions, are necessary to ensure that the goods are not being “enjoyed” by the recipient tax-free while the input tax incurred on the purchase of the goods is claimed by the GST-registered business.

Under the deeming provision, where a GST-registered business gives away goods for free to its employee or business partner such as its supplier or customer, it is treated as making a deemed supply of goods to the recipient. While no GST is charged to the recipient since the goods are given for free, the GST registered business is required to account for output tax based on the Open Market Value (OMV) of the goods if:

• The cost of the gift is more than S$200 (exclusive of GST) and is not a commercial or industrial sample in a form that is not readily available for sale to the public. 
• Input tax has been claimed on the purchase or import of the goods. 

If the goods are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business for no consideration, it is a deemed supply of services and the GST-registered business is also required to account for deemed output tax on the full cost to the business of providing the free services unless input tax has not been claimed on the purchase or import of the goods.

In other words, if the GST-registered business purchased the goods from a non-GST registered seller or it chooses not to claim the GST incurred on the goods, it will not be required to report the deemed supply and account for the deemed output tax when the goods are given away for free or put to private use.

In this connection, GST-registered business may consider not to claim input tax on the purchase of goods that are subject to any of the above deeming provisions. This would save the administrative effort of tracking such goods for the purpose of reporting the deemed (standard-rated) supply and output tax. It would also mitigate any GST cost to GST-registered businesses that claim input tax based on a fixed input tax recovery rate or special input tax recovery formula that is applied on all its input tax claims. In the latter case, while the GST-registered business would have to account for the deemed output tax on the OMV of the goods or full cost of putting the goods to private use, its input tax claim on the purchase would be restricted. 

Conclusion

GST-registered businesses should assess if they are required to comply with any of the above requirements to account for GST output tax as a buyer. If it is assessed that they are required to comply with any of the above requirements, the relevant team or process owner should be notified, and an internal process should be implemented to track such purchases so that GST output tax can be duly accounted for on a timely basis to the IRAS. 

The co-authors of the article are Danny Koh, Partner, Indirect Tax - Goods and Services Tax from Ernst and Young Solutions LLP and Jessie Loh, Director, Indirect Tax – Goods and Services Tax from EY Corporate Advisors Pte. Ltd.