INPUT TAX CREDIT

Input tax credit

INPUT TAX CREDIT

Goods and services tax is a consumption tax levied on the goods imported into Singapore as well as all supplies of goods and services in Singapore. It is calculated based on Custom value of goods plus all the duties or value of the last selling price plus all duties. The current GST rate is 7%. The liability for GST arises when the annual turnover of the business is more than $ 1 million. An entity needs to be registered for GST if its turnover exceeds $1million and the following documents need to be maintained to support the same. GST-registered businesses may incur GST on their purchases (i.e. input tax). You can claim the GST incurred when you submit your GST return to the Comptroller of GST by deducting the total input tax you have paid on your business purchases from the total output tax you have collected from your customers. The difference, called the net GST payable or net GST refundable, is what you will either pay to or be refunded by the Comptroller of GST.

  1. Signed contracts and agreements
  2. Quotations
  3. Confirmed Purchase orders
  4. Invoice to customers
  5. Income statement showing the $1 million turnover

If the business does not exceed $1 million turnover it is not required to register for GST.

INPUT TAX CREDIT

Input tax credit refers to reducing the taxes paid on inputs from the taxes to be paid on output. When any supplies of services or goods are supplied to a taxable person, the GST charged is known as Input Tax. Output tax is the GST that is charged and collected by GST-registered businesses from their customers and is to be paid to IRAS. Input tax is the GST that businesses incurred on their purchases from GST-registered suppliers or when they import goods into Singapore

When purchasing from GST registered suppliers or importing goods into Singapore, you may have incurred GST. You can claim input tax if all the required conditions are satisfied for the claim. The claim can be made during the accounting period that matches the date in the tax invoice or the import permit.

Conditions for claiming Input tax Credit

  1. You are GST-registered;
  2. The goods or services must have been supplied to you or the goods have been imported by you;
  3. The goods or services are used or will be used for the purpose of your business;
  4. Local purchases must be supported by valid tax invoices addressed to you, or simplified tax invoices at the time of claiming the input tax;
  5. Imports must be supported by import permits which show you as the importer of the goods
  6. The input tax is directly related to taxable supplies

Important Considerations in Input Tax Credit

Types of Supply

Supplies for GST purposes can be broadly classified into two categories: taxable supply and non-taxable supply. Taxable supply can be further classified into standard-rated supply and zero-rated supply. Non-taxable supply can be classified into exempt supply and out-of-scope supply.

Standard-rated Supply GST is charged at the prevailing rate of 7% by GST-registered businesses on all sales of goods and services made in Singapore.

Zero-rated Supply GST is charged at 0%. There are two categories of zero-rated supply: 1) exports of goods; 2) provision of international services.

Exempt supply-They include the provision of financial services, sale and lease of residential properties and local supply of investment precious metals (IPM). No GST needs to be charged on exempt supplies.

Out-of-scope supplies refer to supplies which are outside the scope of the GST Act. They also include supplies where the place of supply is outside of Singapore. No GST needs to be charged on out-ofscope supplies and they need not be reported in the GST return

To be eligible to claim input tax, you must maintain:

(a) a tax invoice addressed to you;

(b) a simplified tax invoice10 for any purchase of value of $ 1000 or below

Pre-registration Input Tax Credit

Pre- registration input tax is incurred before the entity registers itself for GST. Based on the general input tax claiming conditions, such GST incurred before registration is not claimable since the business is not GST-registered at the time of supply. However, a special relief is available to allow businesses to claim preregistration input tax in their first GST F5 return. This is provided that all the conditions in the “Pre-registration GST.

The following conditions need to be satisfied;

If you are registered for GST on or after 1 July 2015, you can claim in full the GST incurred on the following goods and services acquired within 6 months before your GST registration date;

  1. a) Goods held by your business at the point of GST registration; and
  2. b) Property rental, utilities and services, which are not directly attributable to any supply made by your business before GST registration.

For all other goods and services acquired before your GST registration date which are partially consumed before registration. Only the portion of GST that is attributable to the supplies made after GST registration is claimable.

 

Partially Exempt Trader

When a trader makes both taxable and exempt supplies he is called a partial trader. As per the GST regulations, only the input tax can be claimed only on the taxable supplies and not the exempt supplies. The input tax on the exempt supplies cannot be claimed. However it is inevitable that most business carry on a taxable business with an exempt supply too( for eg: interest from deposit of money in a local bank, foreign exchange loss/gain etc). Therefore, concessions have been made to allow GST-registered businesses making mostly taxable supplies to claim some input tax incurred on exempt supplies

The following conditions are to be satisfied to claim the input tax credit;

Value of exempt supplies is less than or equals to:

1) Average of $40,000 per month; and

2) 5% of the total value of all taxable and exempt supplies made in that accounting period

Disallowances in Input tax Credit

The following items cannot be claimed for input tax;

  • Benefits provided to the family members or relatives of your staff;
  • Costs and running expenses incurred on motor cars that are either:
    • registered under the business’ or individual’s name, or
    • hired for business or private use.
  • Club subscription fees (including transfer fees) charged by sports and recreation clubs;
  • Medical expenses incurred for your staff unless they are obligatory under the Work Injury Compensation Act or under any collective agreement within the meaning of the Industrial Relations Act;
  • Medical and accident insurance premiums incurred for your staff unless the insurance or payment of compensation is obligatory under the Work Injury Compensation Act or under any collective agreement within the meaning of the Industrial Relations Act; and
  • Any transaction involving betting, sweepstakes, lotteries, fruit machines or games of chance

Expenses incurred by employees on behalf of the company

If it is proved that the employee has acted as an agent for the  taxable personin receiving the goods and services then it is allowed.

Staff medical expenses

These claims are allowed if it is mandatory under the Compensation Act.

Medical and accident insurance premiums for your staff

You are allowed the claim if such insurance or the payment of compensation is obligatory under the Work Injury Compensation Act (WICA) or under any collective agreement under the Industrial Relations Act.

Cost and running expenses of motor vehicles

Other motor vehicles (e.g. lorry, van, motorcycle)

  • Subject to conditions for input tax claims, input tax claims are allowed on motor vehicles that do not fall under the definition of a ‘motor car’ (i.e. constructed or adapted for the carriage of not more than seven passengers excluding the driver, and the weight of which unladen does not exceed 3,000 kilograms).

Important terms in Input tax Credit

Tax Invoice

A tax invoice is an important document in a  business transaction. It is the evidence that the supply of goods or services has taken place and also an essential document for the recipient to claim the Input Tax Credit. Even a GST registered person cannot claim input credit if he is not in possession of a tax invoice.

Simplified Tax Invoice

A simplified tax invoice can be issued in place of a tax invoice if the total taxable amount payable for the supply does not exceed $ 1000.

Receipt

Receipt is issued instead of an invoice to a non-GST registered customer as a proof of your transaction

Credit note

Credit note is issued to correct a genuine mistake or give a credit to the customer. It may also be issued if goods or services are not completed, Goods are returned, Discount allowed, terms of contract are not met.

Self Billing

Self Billing is a concept where a GST registered supplier and a GST registered customer, wherein the customer instead of the supplier prepares the tax invoice and  issues an invoice and sends a copy to the supplier.

 

CONCLUSION

The concept of Input tax credit reduce the final price to the wholesaler, retailer and consumer too, and cause a  shift from individuals paying more taxes to more individuals paying taxes.

Feel free to Chat with us

35,377 Views

©2021 reachautoerpsg

Log in with your credentials

Forgot your details?