Understanding Customer Accounting for GST
Singapore has enacted customer accounting changes, for certain goods, that will go into effect on 1 January 2019. The new changes have been enacted in an attempt to deter fraud schemes and maintain Singapore's identity as a low-fraud country.
Sellers often hide the GST collected, and businesses in the supply chain will claim input tax in common schemes.
Items commonly used in schemes include: software, mobile phones and memory cards.
Understanding Customer Accounting
A taxable supply includes the sale of goods and services that does not include:
- Precious metal investments
- Residential properties
- Financial services
All other items are subject to GST. Businesses in Singapore are required, by law, to charge and account for GST. Input tax claiming conditions allow businesses to claim GST paid for local purchases and goods imported.
Customer accounting accounts for output tax.
The customer, under customer accounting, must account for output tax. Suppliers shift the accounting responsibility to the customer in these circumstances. The customer must be:
- Be the person purchasing the prescribed goods
- Must be purchasing the goods during the course of business
Under customer accounting, the responsibility to account for GST is shifted to the registered customer. This form of accounting does not allow the supplier to charge or collect GST when the sale is subject to customer accounting.
Suppliers are required to report the supply in their GST returns.
In the event that both non-prescribed and prescribed goods and services are rendered at the same time, the GST exclusive sale value is only used when the supply exceeds $10,000. Customer accounting doesn't apply, regardless of value, to non-prescribed goods or services.
Suppliers will be required to provide a tax invoice to GST-registered customers that shows, as the supplier, you have not collected GST on the supply. The invoice must also indicate that the customer has the responsibility to account for GST on the supply.
Customers benefit from the new accounting rules, which allow them to claim the input tax for the purchase. Input tax is allowed to be claimed when the purchase was for business use and the manufacturing of a taxable supply.
Relevant Supply of Prescribed Goods and Customer Accounting
The prescribed goods allowed under customer accounting include: off-the-shelf software, memory cards and mobile phones. Local sales of prescribed goods require customer accounting when the goods are purchased by a GST-registered customer for business purposes.
Customer accounting is only applicable when the GST-exclusive value exceeds $10,000 per invoice.
Customer accounting is not applicable to non-GST registered customers. That is, if a supplier sells mobile phones, memory cards or off-the-shelf software to a non-GST registered customer, customer accounting does not apply.
Instead, the supply will be standard-rated.
Goods that are exported to overseas customers will have zero-rating if it satisfies the conditions. When the conditions for a zero-rating are not satisfied, the supply of the goods must be standard-rated.
Suppliers that receive goods from customers for a relevant supply will account for GST chargeable. In this case, you as the supplier, receiving goods from a supplier as a GST-registered customer, will be able to claim input tax on the purchase.
Customer accounting does not apply in the event that the supply of the prescribed goods is an excepted supply.
Definition of Mobile Phone
A mobile phone, under customer accounting, is a phone that:
- Uses a cellular network to receive and transmit spoken messages
- Is a device with a screen size of 17.5cm or smaller measured diagonally
Even if the device meets the definition of a mobile phone, there are instances wherein the mobile phone is excluded from customer accounting. Exclusions occur when:
- The phone is purchased from an approved mobile service provider with whom the purchaser has a service plan or mobile subscription.
- The plan doesn’t involve collecting advanced payments.
- The mobile phone supplier also provides the plan.
Definition of a Memory Card
Memory cards are considered a device that uses flash memory data storage. These devices are used for the storing of digital information and excludes any drive that has an integrated USB interface.
These devices do not include:
- Portable external hard disks
- Thumb drives
Devices that fall into this definition may include:
- Memory sticks
- SD Cards
Definition of Off-the-Shelf Software
The definition of off-the-shelf software is one that is arduous, and where:
- The software is stored on a compact disk or similar medium
- The software has a license key or product key on the physical packaging
Software preloaded on a computer or hardware is excluded. For software to meet the condition of off-the-shelf software, it must not be customized in any way for the customer. Software in this case may include video games, console games, accounting software, anti-virus software, and downloads from the Internet.
Software downloaded from the Internet that does not come with a license key or product key is not considered off-the-shelf.
Backup copies of software is also not considered off-the-shelf software.
GST-Registered Supplier Requirements When Making a Relevant Supply
Suppliers are allowed to check if a customer is GST-registered through the IRAS website: http://www.iras.gov.sg. Customer accounting is applicable when the goods fall within one of the three categories above, and are sold to a customer under the following:
- $10,000 is spent in a single invoice
- GST-registration is valid
Invoices must be supplied when a relevant supply to a customer is made. The invoice must contain the following additional information:
- Information pertaining to the customer being required to pay GST
- The amount of GST to be paid
For example, the invoice may contain the following wording:
- Customer to account for GST of $100 to IRAS
Of course, the language should be discussed with a legal professional or accountant that can ensure the wording is up to standard.
Suppliers should only collect GST-exclusive price for prescribed goods when a relevant supply is made. In this case, the invoice should not display the price including GST. Sales which include additional supplies which may fall under zero-rated or standard-rated may provide a separate invoice for the relevant supply.
A separate invoice will make it easier to understand the output tax and clearer for the customer.
Suppliers are not allowed to charge GST on a relevant supply. Suppliers ought to make sure that their accounting software accounts for the new requirement. Tweaks or new software may be required to account for the 2019 changes.
GST-Registered Customer and Relevant Supply Requirements
When prescribed goods exceed $10,000, customers must supply their GST registration number to a supplier that is GST-registered. Customers must alert the supplier if they're making a purchase of the prescribed goods for non-business use.
The supplier, in the above scenario, would have to apply the standard-rate and charge on the sale.
Suppliers have the legal right to ask customers to supply, in writing, documentation that states that they're purchasing prescribed goods for non-business use.
Customers, under the new customer accounting rules, will take on the burden of accounting for GST on their supplier's behalf. The GST-exclusive price will be provided in the total value of standard-rated supplies box, or Box 1 on the form.
The GST amount will be input into the output tax due box, or Box 6.
Customer accounting is a way for ensuring accountability when sales are made and to lower instances of fraud. The new accounting method will go into effect in a year, so there is plenty of time for business to account for the changes.