Difference between input and output GST

Once registered for GST, a company must charge GST on its supplies at the prevailing rate. This GST that is charged and collected is known as output tax. Output tax must be paid to IRAS.

Input tax

The GST that a company incurs on business purchases and expenses (including import of goods) is known as input tax.

If your business satisfies the conditions for claiming input tax (as detailed below), you can claim the input tax on your business purchases and expenses. This input tax credit mechanism ensures that only the value added is taxed at each stage of a supply chain.

You must satisfy these conditions to claim input tax:

• You are GST-registered;
• The goods or services must have been supplied to you or the goods have been imported by you;
• The goods or services are used or will be used for the purpose of your business;
• Local purchases must be supported by valid tax invoices addressed to you or simplified tax invoices at the time of claiming the input tax;
• Imports must be supported by import permits which show you as the importer of the goods;
• The input tax is directly attributable to taxable supplies (i.e. standard-rated supplies and zero-rated supplies), or out-of-scope supplies which would be taxable supplies if made in Singapore;
• The input tax claims are not disallowed under Regulations 26 and 27 of the GST (General) Regulations.

Leverage the expertise of qualified professionals who can help you with GST services in Singapore.

Process for paying Output Tax and claiming Input Tax credits

As a GST-registered company:

• You must submit your GST return to IRAS one month after the end of each prescribed accounting period. This is usually done on a quarterly basis.
• You should report both your output tax and input tax in your GST return.
• The difference between output tax and input tax is the net GST payable to IRAS or refunded by IRAS.

Charge and collect GST in Singapore correctly

Every GST registered company in Singapore must charge and collect the output tax, which must be paid to IRAS. Then, input tax can be claimed back. We can help you do this correctly.

This Blog is written by Mr. Zeeshan Ali, Senior Associate Taxation and Accounting Services. Please read this blog and provide your valued comments.

INPUT TAX AND OUTPUT TAX

An important feature of the sales tax is the adjustment of input tax paid on purchases and imports, as a registered person has to pay sales tax only on his value addition.  

• Output tax is the total amount of sales tax charged at current rate of sales tax on taxable sales made during the month i.e. total sales excluding exempt and zero-rated supplies.  
• Input tax is the amount paid by the registered person on business purchases and imports. He can claim a deduction for the sales tax paid as input tax if used in the manufacture of taxable supplies.
• Tax Due for a particular tax period will be the output tax minus input tax during that tax period

Example: If a registered person purchases goods for Rs.100 and pays Rs.15 as sales tax (input tax)@   15% his total purchase price becomes Rs 115. If he/she sells the goods for Rs 200 and charges Rs 30 @ 15%(as output tax) his total sale price  becomes Rs 230.

• Adjustable Input Tax

In a particular tax period, a registered person can adjust input tax paid on goods and services purchased from local market, imported from abroad and goods purchased in auction during that tax period. He can also claim input tax paid in the immediate twelve preceding tax periods by mentioning the reasons for not claiming it earlier on the sales tax return.

• Extent of Adjustment of Input Tax

In relation to tax period, a registered person shall not be allowed to adjust input tax in excess of ninety percent of the output tax for that tax period. The adjustment or refund of remaining input tax shall be made on yearly basis in the second month following the end of the financial year of the registered person.

• Input Tax Adjustment on Fixed Assets

The tax charged on acquisition of fixed assets shall be adjustable against the output tax in twelve equal monthly installments after the start of production of a new unit.

• Non-Adjustable Input Tax

Input tax cannot be adjusted on purchases of goods and services that are not used in making of taxable supplies.  Input tax is also not adjustable on the following goods, if acquired other than as stock-in-trade:

• Vehicles falling in chapter 87 of the First Schedule to the Customs Act, 1969.
• Food, beverage, garments, fabrics etc and consumption on entertainment.
• Gifts and give aways.

For further details please see SRO 490(I)/2004 dated June 12th 2004.

A tax credit cannot be claimed unless the registered person holds a valid tax invoice or bill of entry or treasury challan Form in case of goods purchased in auction.

Input tax credit cannot be claimed also if payment of the amount of sales tax is not made or received through banking channel as prescribed in section 73 of the Act.

• Partial Exemption / Apportionment

Under the Sales Tax law, adjustment of input tax paid on raw materials, is admissible only in case of taxable supplies. The law does not allow adjustment of input tax paid on raw materials relating to exempt supplies.

There may be situations, where registered persons make taxable and exempt supplies simultaneously. In such situation following formula has been devised in Chapter iv of Sales Tax Rules 2006:

RITC

(VTS + VES)

VTS= Value of Taxable Supplies

VES= Value of Exempt Supplies

RIT= Residual Input Tax

In the above formula, “residual input tax” means the amount of tax paid on raw materials, components and capital goods having used for making taxable supplies as well as exempt supplies, but does not include the input tax paid on raw materials used wholly for making taxable or exempt supplies.

Example:  

If the amount of tax paid on raw materials, components and capital goods used for taxable as well as exempt supplies is Rs. 100. If out of this amount of Rs. 100, Rs. 20 is paid for inputs used in taxable supplies and Rs. 30 is paid for inputs used in the production of exempt supplies then Rs. 50 i.e. 100-(20+30) is the “residual input tax”.

Now the residual input tax credit on taxable supplies can be calculated as below:

VTS=90, VES=60 then,

RITC (on taxable supplies)= 90 X 50  /(90+60) = Rs.30

Monthly adjustment of input tax claimed by a registered person through above formula shall be treated as provisional adjustment and at the end of each financial year, the registered person shall make final adjustment on the basis of taxable and exempt supplies made during the course of that year.

What is input GST?

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