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Goods and Services Tax changes

Plan for the GST rate hike made concrete

The timing and approach of the GST rate hike have been much discussed since 2018. The Minister has now announced that the GST rate will increase from 7% to 8% on 1 January 2023 and to 9% on 1 January 2024.

This GST rate hike will help the Government raise part of the additional revenue needed to meet rising healthcare and social spending. Introducing the GST rate hike in two steps and at a later date will help manage concerns over the rising costs of living especially when there is significant uncertainty surrounding the outlook of inflation. However, GST-registered businesses will need to plan ahead to address two rounds of costs and efforts to implement the GST rate hike.

Plan for the GST hike made concrete

To help businesses with the implementation, a 10-month lead time is provided, unlike the four-month preparation period provided during the last rate hike in 2007. In addition, close to $40 million has been set aside under the Productivity Solutions Grant to subsidise the acquisition of accounting and point of sale solutions by eligible businesses.

To offset the negative impact of the GST hike on lower- and middle-income Singaporeans, the Government has provided a top up of $640 million to the earlier $6 billion Assurance Package.

GST treatment for travel arranging services

GST treatment for travel arranging services

In recent years, Singapore has introduced several new rules to ensure that our GST system remains resilient and relevant in the digital economy. This Budget rolls out changes to the basis of zero-rating travel arranging services to ensure that the GST treatment reflects the place of consumption especially in the context of the growing online travel booking market.

Currently, the GST treatment of a supply of travel arranging services is as follows:

  • Services for the arranging of international transport of passengers and the arranging of insurance related to such transportation are zero-rated
  • Services for the arranging of accommodation in Singapore are standard-rated and the arranging of overseas accommodation are zero-rated (i.e. based on the location of the accommodation)

With effect from 1 January 2023, zero-rating may apply to the travel arranging services if the contractual customer belongs outside Singapore and the direct beneficiary either belongs outside Singapore or is GST-registered in Singapore. 

The above changes will require affected businesses to collect different types of information for the purpose of determining the GST treatment. Under the revised rules, affected businesses will need to refer to the location of the customers and direct beneficiaries to zero-rate the travel arranging services. Affected businesses should review their systems and processes to ensure that the GST treatment is correctly applied and the new data points can be collected. Affected businesses should undertake the above review in conjunction with their preparations for the GST rate hike.

The Inland Revenue Authority of Singapore (IRAS) has provided guidance on its website on the revised GST treatment of the travel arranging services and more details will be provided by 31 July 2022. The guidance, however, did not address the issue on whether the consumer who books the accommodation or transport would be considered the “direct beneficiary” of the travel arranging services. Where the contracting party with the travel arranging service provider is the supplier of the accommodation or transportation services, we believe the location of the consumer should not be relevant in determining the zero-rating GST treatment as the purpose of the travel arranging services is to facilitate the suppliers in selling their accommodation or transportation services. We hope further clarification will be provided by the IRAS by 31 July 2022.

Get in touch

Chris Woo

Tax Leader, PwC Singapore

+65 9118 0811

Email

Kor Bing Keong

Goods and Services Tax Leader, PwC Singapore

+65 9112 6982

Email

Tan Tay Lek

Partner, Tax, PwC Singapore

+65 9179 2725

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