GST exemption - penalty or benefit

Printed in Today paper, 5 January 2010

I run a small business with a turnover that falls within the GST exemption limit.
This exemption was supposed to be a benefit to assist small businesses but it turned out to be a penalty. I have to pay GST on my rental, utilities and purchases of supplies and services, but I am not able to recover the GST inputs from my sales to business customers. I cannot increase my prices to these customers to cover my GST inputs, as they do not receive any GST credit for purchases from exempt entities.

With great reluctance, I decided to “volunteer” to be a GST registered business and bear the burden and cost of keeping GST records and submitting quarterly returns to IRAS.

IRAS accepted my voluntary registration and sent me a written notice that have to attend a GST briefing within three months, failing which my registration would be cancelled. I tried to register for the next briefing but it was fully taken up. I sent an e-mal to register for the next briefing but have not received any reply after two weeks. I get the impression that IRAS does not really welcome a small business to volunteer to be registered for GST.

Instead of making life difficult for small business, I hope that IRAS will tell the Minister of Finance why small businesses are volunteering to register for GST, when they are not required to, and why it is troublesome for IRAS to collect small amounts of GST revenue from these volunteers.

It will be better for the penalty on small businesses to be removed, so that they do not have to volunteer to be registered for GST. This can be achieved by allowing all eligible purchases by business entities to be treated as GST credit, regardless of whether they were purchased from exempt or non-exempt suppliers.
Apart from helping the small businesses, it will simplify the GST system and reduce the burden to businesses of keeping separate records to comply with the accounting of GST. The loss of revenue to IRAS would be quite small and could be offset by the savings in their administrative cost. More importantly, there will be cost savings for the economy by reducing the unproductive work.

Tan Kin Lian

RESPONSE
I receive a call from IRAS to explain the delay in replying to my registration. I told them that the delay is unimportant. It is more important for the Minister of Finance to review the implementation of GST to remove the unintended consequences, i.e. many people "volunteering" to register for GST when they pay little GST. This has caused unnecessary work for the small business and IRAS.