2024 Guide: Navigating Singapore Service Charge and GST Calculations on Purchases

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GST, or Goods and Services Tax, is a broad-based consumption tax levied on the import of goods, as well as nearly all supplies of goods and services in Singapore. It is also known as value added tax (VAT) in many countries. The current rate of GST is 7%. On the other hand, service charge is a type of charge that is imposed on the consumer by the supplier of the service. It is in consideration of the provision of the service. However, tips or gratuity is a voluntary payment made by the consumer to the person who has provided the service in question. It is not compulsory for the consumer to pay the service charge imposed. Understanding GST and service charge is very important because it affects the selling price of goods or services and can have an impact on the cost and expenses of businesses. Being able to calculate GST properly is necessary as undercharging or overcharging GST is an offence. Service charge calculations are also important, especially for businesses providing services. Service charge and tips may come up in the service industry and it is crucial to differentiate between the two. We will also go through how GST and service charges are shown on invoices and how consumers can identify GST and service charge on their receipt. As well as learning how to navigate the complexity of GST and service charge, we will also discuss about the consumers’ rights and obligations when it comes to GST and service charge.

Introduction to Singapore Service Charge and GST

GST stands for Goods and Services Tax. The tax is levied on most goods and services provided by registered businesses in Singapore. Another type of tax is the service charge, which is a fee added to the cost of a service provided to customers. Every restaurant and hotel in Singapore, as far as I know, adds a 10% service charge to the bill. Service charges are regulated by the Singapore government, but customers should expect to also give a bit extra to the service staff. I understand that tips or gratuities are voluntary monetary rewards provided to employees for good service, whereas service charges are compulsory and are normally retained by the employer. So the big difference between the two is whether it’s for the employee’s good service or a compulsory charge by the employer to cover the operations and maintenance of the restaurant or hotel. Further, understanding these calculation methods can help consumers understand the charges on their bill. This will ensure that there is no discrepancy of overcharging or mistakes, and only the right amount of GST is paid. Also, such understanding is important for businesses when accounting for GST and doing billings. Erroneous charge of GST can lead to penalties imposed by the tax authority. The importance of understanding GST and service charges in Singapore leads to the need for this guide. This guide is a ‘practical’ guide to provide a step-by-step guidance to calculate GST when buying goods and services and also to provide an in-depth understanding of the different types of supplies in GST. The background is on providing a more application-based approach to the readers who would want to know the procedures and have a better understanding of the concepts easily and to relieve from the stress of just having to struggle to understand the law explanations. In particular, interactive steps and flow-chart diagrams are made available to ensure the readers can obtain the best help in their learning. This guide will serve as a beneficial tool to businesses. Such knowledge is important for corporations and companies because errors in calculating GST will give unsustainable expenses and also administrative fines to the business. This should give you a good reference for understanding more on goods and services tax in Singapore. I encourage you to get the firsthand experience in the practical and hands-on tutorial in order to reinforce what has been provided in this guide.

Importance of Understanding Calculation Methods

I always tell my students that understanding the calculation methods is quite important to avoid overpaying GST. But why is that so and what benefits do a consumer like you and me stand to gain? Our tax authority, the Inland Revenue Authority of Singapore (“IRAS”), adopts any one of the following three accepted methods for calculating output tax on a “discounted selling price”, when a GST-registered supplier is giving a prompt payment discount to his customer: Price included method; Weighted average price method; or Supplier’s selling price. Students can refer to GST: Am I required to account for GST on prompt payment discount for detailed explanations and examples for each of the above accepted methods. Students of my classes are taught the common methods that many businesses adopted in practice. Last but not least, a consumer always has the right to demand a proper official receipt to ensure that the GST charged will be accounted for by the relevant traders and paid to the Singapore tax authority. Under the GST law, the term “tax invoice” has a specific meaning and it is different from an ordinary “invoice”. Look out for my next lessons where I will share interesting regulatory pointers that any good compliance officer should bear in mind!

GST Calculation

Since the GST has been implemented on 1st April 1994, it has achieved its purpose of improving Singapore’s economy. It has become one of the main sources of income to Singapore’s government.

Input tax refers to the GST amount that is added to the purchase price of the goods and services made by a GST-registered person. On the other hand, output tax refers to the GST amount that is collected from customers by a GST-registered person. A registered person has to pay the net difference between the output tax and input tax to IRAS.

“Tax-exempted” refers to supplies that are not subjected to GST; these items are either not subject to GST by legislation or are specifically listed in the “Fifth Schedule” of the GST Act. In contrast, “zero-rated” supplies are goods and services that are charged at 0% GST.

In Singapore, the Goods and Services Tax (GST) is a broad-based consumption tax levied on the import of goods, as well as nearly all supplies of goods and services. The current rate of GST is 7%. This means to say that if you purchase a particular item in Singapore, it is very likely that the price is subject to a 7% tax, unless the items are specifically stated as “tax-exempted” or “zero-rated”.

2.1. Understanding GST Rates in Singapore

Understanding GST Rates in Singapore

On the other hand, there are also certain goods that are taxed at a lower rate of 0% or completely relieved from GST; these are known as zero-rated supplies and include the export of goods and international services. It is important to verify your supplier’s GST registration status to ensure whether you are subjected to 7% GST. Remember, only GST-registered businesses are allowed to charge and collect GST.

Do note that there are certain items that are specifically taxed at a higher rate, commonly referred to as ‘dutiable’ items; for example, motor vehicles, liquor, and tobacco products. In particular, the GST rate for motor vehicles is 10% while liquor and tobacco products are not only subjected to excise duties but also to an additional GST, referred to as ‘duties and GST’.

Goods and Services Tax (GST) is a broad-based consumption tax levied on the import of goods (also known as Import GST) as well as nearly all supplies of goods and services in Singapore. The current GST rate in Singapore is 7%.

Steps to Calculate GST on Purchases

Firstly, obtain the price paid for the goods or services, excluding GST. Next, multiply the price by the prevailing GST rate at 7%. The answer is the GST payable. Add the price and GST payable together as these are the costs to your business. It is important to ensure that all those 3 figures – the actual amount before GST, the calculated GST, and the total amount – are clearly shown on the tax invoice given to you by your supplier. This is because any reimbursement by an employee for the company’s expense will have the GST amount supported by such tax invoices as required by the GST general ruling. There is really no rocket science in that. You just need to give yourself a little time and familiarize with the calculation process. Yes, I can understand for those that have just joined in the business venture, it could be annoying when it comes to all these calculations. But take heart, you’ll be pleased to know that once you have gone through the first few billing parts, and with regular GST treatment processes, I believe you will be more than a “calculator hero” already. Oh, these aren’t talking about how to operate your calculator. By then you would also notice that “GST” would be a common word in your company! It has to be! Because all this while, your company is paying GST and therefore, every single billing amount has been tremendously overloaded with the “transparent” GST! Every raked cash draw made will go to the government, every cheque payment cut will share with the government, every loose change in the cheque from you calculating a round figure would eventually give more to the government and so on. “GST” – whether it means “Great Stupid Tax” or “Gila Stupid Tax” (crazy in Malay *pardon for that*), derived from personal’s view. Yes, it is indeed a critical tax practice to create criticism in the fact that the overseas friends have started an on-hold decision whether they want to enjoy this tax relief period or giving up immediate their green-pasture land and coming home to embrace the revised country tax. Well, pals, nobody wants to have an extra expense. Right? Oh for the government wise, I’m very sure they’re looking at not only the tax itself but the anticipation of encouraging businesses and consumers to adapt to the GST policy over the years. And of course, together with a set of outsourcing compliance program offered eventually by them, so even effort is minimized to educate taxpayers! Dandy! Oh, don’t be too pessimistic. At first instance, all might seem a little bit frustrating as everyone has to claim their company’s reimbursable GST part and the company has to ensure all these claims by employees are properly processed. Help and time are put in without return initially. However, managing a treated company is never a loss. And in return for the GST tax claimed, that’s an equivalent extra in your pocket apart from those billing figures contributed to the government.

Exemptions and Zero-Rated Supplies

Apart from standard-rated supplies, there are two other types of supplies under the GST Act: exempt supplies and zero-rated supplies. Making exempt supplies is different from making zero-rated supplies. When a taxable person makes exempt supplies, he is not making any supply that is subject to GST. This means that he is not required to charge GST on exempt supplies and that he is not entitled to claim input tax credit on any purchases relating to the exempt supplies. On the other hand, a taxable person who makes zero-rated supplies is still making taxable supplies but the rate of GST on his supplies is 0%. This means that he is still required to apply for GST registration and charge tax on his supplies. However, he will charge his supplies at a zero rate and can claim input tax credit on any purchases relating to the zero-rated supplies. It is important to note the differences between exempt supplies and zero-rated supplies, as the GST treatment in respect of these supplies is different. This will ensure that your business applies the correct GST treatment and fulfills its tax obligations under the GST Act. Note that under Section 33 of the GST Act, the Comptroller of Goods and Services Tax may, on application by a taxable person, with the concurrence of the Minister, declare that any supply or class of supplies or importation of goods shall be a zero-rated supply. This is known as zero-rating approval. Also, there is a proposal to abolish the distinction between zero-rated supplies and exempt supplies. Under the proposed “Harmonisation of Zero-rating and Exempt Supplies” e-Tax guide that is scheduled to take effect on 1 April 2019, section 33 of the GST Act will be repealed. This means that a person who makes what are currently approved zero-rated supplies would now be making standard-rated supplies and be subject to the GST. The changes will have an impact on approved zero-rated suppliers when the law is in effect. To check whether a supply is an approved zero-rated supply or a non-approved zero-rated supply, taxpayers can visit the IRAS website.

Service Charge Calculation

Service charge laws in Singapore. According to law, if a service charge is imposed, the consumer must be informed. Also, the consumer should not be compelled to pay for the service charge if the consumer is not satisfied with the service provided. Well, it is a 10% service charge. For a $40 spend, the “extra tax on top of GST” is $4. I personally feel this tax-free sum to be on the high side. However, I am keen to know where does this 10% service charge goes. The 10% service charge goes directly to the service staff. This service charge does not belong to the business owner as it is a charge that the business collects on behalf of the service staff for the extra service provided to the customers. The service staffs are scheduled to grab shares from the service charge. The business distributes the service charge to the service staffs based on a ‘share period’ which should not exceed one month for that 10% service charge. How often should I pay for the service charge? Well, the business should pay the service charge collected to the service staffs at the end of the ‘share period’. For example, if a customer is not happy or has a bad dining experience, can the customer request the owner for service charge waiver? Yes, the customer can do so. If a service charge is imposed, the consumer must be informed. Also, the consumer should not be compelled to pay for the service charge if the consumer is not satisfied with the service provided.

3.1. What is Service Charge?

Service charge is a separate and distinct price for service provided by staff in a restaurant or a licensee for serving or preparing food or drink. It is not a voluntary amount, it is a charge which is enforceable and the consumer is bound to pay it if the establishment makes it clear that service is not included in the price. However, if the establishment makes it clear that the service is included in the prices displayed or given to the consumer then the consumer is not bound to pay any service charge over the displayed prices. This will be in accordance with the Consumer Protection (Fair Trading) (Amendment) Act 2012 (“FTA”) which came into effect on 1 November 2012. This is part of the Government’s ongoing effort to improve fairness in consumer dealings and is frequently asked by the consumers. Sometimes, people may mistake ‘service charge’ for ‘tips or gratuities’ or ‘cover charge’. It is important to understand what they mean. ‘Tips or gratuities’ is a voluntary amount paid by the consumer to any staff and not to the owner/management of the business. Whereas, ‘cover charge’ is actually a charge to ‘cover’ the expenses for taking food and drinks into the premises and applied only when they are consumed on the premises and before 9 pm. This only applies to the pub licensees as stated under the Customs (Duties) (Covered Premises, Act 729 18 C 21a of schedule 6). However, ‘service charge’ is a separate and distinct price for service provided by the service staff or licensee.

Calculation Method for Service Charge

In Singapore, service charge is calculated based on a fixed percentage of the total selling price. The fixed percentage is the service charge rate. For example, if the service charge rate is 10% and the total selling price is $100, the service charge amount is 10% x $100 = $10. The resulting total amount payable by the customer is the total selling price plus the service charge. For instance, if the total selling price is $100 and the service charge amount is $10, the total amount the customer needs to pay is $100 + $10 = $110. When service charge is applicable, it must be clearly indicated on the price list, and with a notice to state that service charge will be included in the selling price. This is to ensure that customers are aware of the service charge before making payment. Customers should also check for the notice and the service charge amount in the price list and ensure that it has been included in the invoice before making payment. This method of calculation is known as an ‘inclusive’ method. Service charge is calculated based on the selling price, including the GST amount, to obtain the final total amount to be paid by the customer. This is unlike the ‘exclusive’ method, where the service charge is calculated based on the selling price excluding the GST amount. However, the inclusive method is a more common practice in the F&B industry in Singapore. It is also entirely possible for the service charge to be calculated based on the selling price of a single item, e.g. a dish, even if a customer’s total bill consists of multiple items. In this case, the service charge is calculated based on the individual selling price of that particular item. This method is generally known as the ‘balanced’ method. Customers in Singapore are advised to check that the service charge has been included in the final amount displayed in the invoice before making payment. If customers have any doubt on the accuracy of the service charge or there is a dispute on the service charge amount, they can approach the consumer association of Singapore, CASE, or seek their own redress through the State Courts. The service charge amount should also be clearly indicated in the invoice.

Service Charge vs. Tips and Gratuity

In this part of the guide, the difference between service charge and “tips” or “gratuity” is discussed. According to the Singapore Department of Statistics, tips and gratuity are voluntary monetary rewards paid by customers to service employees. Such payments are given in recognition of good service and are not compulsory. On the other hand, service charge is a compulsory additional fee imposed by the restaurant or the eatery on the consumers. Service charge is meant to be an additional income to the employee serving the customers. Although the payment would not reach the employee’s pocket immediately and there is a revenue from the service charge that would first go to the operator of the food establishment. It should be noted that if a restaurant intends to retain the service charge for its revenue purpose, the information must be displayed at a prominent location near the entrance of the restaurant.

Service Charge Guidelines in Singapore

In Singapore, service charge is subject to GST. It is a standard practice in the service industry for businesses to impose service charge on their customers. However, there are no specific guidelines on the rate of service charge to be imposed. It is common for the rate of service charge to range from 10% to 15% of the total price of the supplies rendered to the customer. Nonetheless, customers have the right not to pay for the service charge if it is not displayed at a prominent location within the business premises or printed on the menu. Also, if the customer is imposed a service charge during the transaction, it is compulsory for the full amount of the service charge collected from the customers to be distributed to the employees who had directly rendered the services to the customer in the business. Such distribution must be made in accordance with the Employment Act. Last but not least, the service provider must also display a notice at the business premises stating that the full amount of the service charge will be allocated to the employees. These guidelines are important to ensure that both the customers’ and employees’ rights and interests are protected in the trade and industry.

Navigating GST and Service Charge on Purchases

One aspect of handling purchases in Singapore is the ability to understand goods and services tax (GST) and service charge. By law, prices shown by retailers and restaurants are inclusive of these 2 types of charges. It is vital to know how these charges impact your spending as well as your rights in case you are wrongfully charged with it. First thing first, you would need to know exactly what amount is taxed for GST. Well, except for a few exempted goods and services, provided that whatever you are purchasing is not listed in the exemption lists, GST may apply to the selling of goods, the rendering of services and the leasing of goods. As for a general consumer, you just have to take note of these 2 terms, ‘standard-rated supply’ and ‘zero-rated supply’. When a supply is standard-rated, GST is chargeable at the prevailing rate, which is the majority 7%. If it’s a zero-rated supply, no GST will be charged but you can claim back the input tax you have “paid” when purchases are intended for making zero-rated supplies. On top of this, it is good to know that businesses which make standard or zero-rated supplies will have to register for GST if their turnover for the past 12 months is more than $1 million. As such, unless you are running a big business, most likely you will not be charged with GST independently. However, for large franchises in Singapore, given that most of the companies produce an annual turnover of more than one million dollars, you wouldn’t be surprised to find that restaurants like Thomson or Crystal Jade charging you with the listing of ‘prices are subjected to 7% GST and 10% service charge’ alongside with the cost of food and drinks. On the other hand, service charge, which is also known as ‘genuine service charge’, refers to a charge which is made in return for a service provided to the person who makes the payment. The amount so defined is subject to GST if it’s imposed as a condition of the supply of goods, and the sales voucher or receipt states it clearly as a condition. With a view to supplement the section on GST understanding in the previous part, if you are running a business that makes both standard and zero-rated supplies, you have to apportion and charge GST based on your supplies’ taxable turnover over the total turnover. What is a zero-rated supply? Well, it just simply means that the purchase from that supply is not subjected to the prevailing GST but the thing is, if it’s an exported supply, then it is regarded as a zero-rated supply. Zero-rating means that the rate of tax charged is 0%, that is to say, the seller can still reclaim the GST on their expenses and purchases, even though they do not charge GST to the customers. For examples of such supplies, export of goods and the supply of goods and services to international services are among the popular ones. As the population is ageing, the demand for healthcare services may influence individual purchases. As of a number of supplies being provided in the public hospitals are classified as GST-exempt or ‘out-of-scope’ supplies, namely, supplies which are neither of standard-rated, zero-rated nor exempt supplies. Out-of-scope supplies do not give rise to output tax and any GST incurred in making such supplies may not be claimed. On top of this, some of the supplies are GST exempted, say, provision of medical facilities and residential care services. For the rest of the supplies in general, standard rating applies.

Identifying GST and Service Charge on Invoices

When identifying GST and service charge on invoices, it is important to know what to look out for. This guide highlights key areas of the invoices where the GST and service charge are usually identified. First, identifying GST on invoices. If GST is charged on a supply, the invoice must clearly indicate the amount of the GST as a separate amount from the total price. The word “GST” and the GST registration number of the supplier should also be clearly stated on the invoice. Next, identifying service charge on invoices. If a service charge is imposed by the supplier, the invoice should clearly state the exact amount of the service charge. The words “service charge” should be used and it should be shown as a separate amount from the total price. It is important for consumers to understand that unless the supplier has indicated otherwise, the service charge amount is not compulsory. However, where a service charge is stated to be imposed, it will be considered as part of the selling price of the supply and subject to GST, unless the supply is prescribed to be an exempt supply. By learning how to identify GST and service charge on invoices, it provides greater transparency, accuracy and awareness of the costs applicable to the purchases made. This allows more effective budgeting and management of such costs. In the next section, this guide will discuss some tips for budgeting and managing GST and service charge.

Tips for Budgeting and Managing GST and Service Charge

Unlike GST, service charges are not regulated by the Singapore government. There is no fixed rate and it is up to the individual businesses to determine the amount of service charge to impose. Generally, the service charge collected from customers is used to pay the salaries and wages of service staff and it will be later distributed among them. If you see “10%” service charge, it does not mean that the service charge is calculated as 10% of your total bill, but the 10% service charge will be levied on top of your total bill. However, unlike the GST charge which is always shown as a separate item in your total bill, some restaurants may include the service charge as part of your total amount without prior notice to you. Regardless of whether the service charge is being included as part of the total cost, it is important to know that you are entitled to basic consumer rights. This means that the price shown on menus has to be inclusive of GST and service charge. On top of that, businesses are also required to display notices to make customers aware of the prevailing rate of service charge, as well as informing them if any service charge is being included and how it is distributed. This will greatly assist customers in making more informed choices when choosing service providers and to better understand the mechanisms of the service industry. In addition, while it is optional to impose a service charge, businesses are not allowed to indicate a specific form of payment, such as credit card or Nets, if they do not charge a similar fee for the usage of the said mode of payment. Also, if a service charge is included, businesses are not allowed to impose a surcharge specifically for the use of a credit card or charge card by the customer. By knowing your rights as a consumer, you can avoid any unnecessary disputes over non-compliance of regulations which will result in inconvenience to yourself as well as enforcements taken against the businesses by relevant authorities.

Understanding Consumer Rights and Obligations

When we make a purchase in Singapore which includes GST and service charge, as a consumer we have several rights and obligations. Under GST Act 2018, the supplier is legally obligated to provide a tax invoice for any standard or reduced rated supplies. As a customer, we should ensure that a tax invoice is issued for any purchase over $100 from GST-registered businesses so that we can use these invoices to claim input tax. We have to make sure that the supplier’s name and GST registration number are reflected in the tax invoice in order to validate its authenticity. It is also advisable to request for a receipt with a business stamp whenever we make cash purchase so as to prevent fraudulent receipts. If we come across to any misleading or deceptive conducts on price display, non-disclosure of information or any unfair practices due to the GST and service charge – for instance, a restaurant fails to display the price before the addition of service charge, we should make a proper complaint to the Singapore Tourism Board (STB) or the Consumers Association of Singapore (CASE). If the business have breached any provisions of the Consumer Protection (Fair Trading) Act such as false claims for goods, they may be imposed a fine of up to $10,000 or imprisonment for a term not exceeding 2 years or both for the first offence. For the second or subsequent offences, a fine of up to $20,000 or imprisonment for a term not exceeding 4 years or both may be imposed instead. We should also file a complaint to the Inland Revenue Authority of Singapore (IRAS) or the Singapore Customs if we suspect any violation of the GST Act or Rules, for example, the making of fictitious or incorrect entries in the business records or the submission of false information to the authority. In doing so, we will assist the authority to maintain a fair and effective tax system for the compliance of the tax laws is enforced. If an investigation is carried out and we are called to provide any necessary documents or to be a witness, we have to comply with the requests within the stipulated time period; otherwise, we may be liable for any sums payable by a witness to a District Court on the request of the court, in accordance with the provisions of any written law.