At first glance, the Goods and Services Tax (GST Input Tax) — also called Value-Added-Tax (VAT) in other countries — seems rather straightforward to consumers.

However, taking the perspective of a business owner, it turns into a web of rules and requirements, which can often be confusing – and at times – outright irritating.

The main challenge faced by all companies is how to claim the maximum amount of input GST tax and at the same time ensure that the tax filing is compliant to avoid expensive fines.

In this article, I will focus on how organizations can optimize GST claims from general expenses.

Although many can easily neglect this category because it’s smaller in value than trade-related items, I do believe it can have an impact on the bottom line if companies handle it efficiently. And this is relevant in countries around the world that implement GST or VAT.

Conditions to Claim GST Input Tax

As with most tax-related deductions or claims, you can only claim input tax if certain conditions are fulfilled:

  • Your company is registered for GST
  • The expense category is eligible for GST Input Tax deduction
  • Tax invoice or receipt contains all the relevant data

GST-registered companies

Companies that have a certain minimum revenue are required to register for GST.

Although these companies have to pay GST to the tax authorities, they actually don’t have to bear the cost, but collect it from its customers and transfer the tax to the tax authority.

To avoid double taxation, you can claim as input tax any GST paid by the company on items that add to the value of the product or service.

Allowed Expenses

However, you can’t claim back all the GST paid as input tax. Generally speaking, the cost that is directly attributable to a good or service is claimable.

Although there are rules such as which type of expenses are allowed for input tax claims, this often requires a case-by-case decision. Examples of eligible expenses include office supplies or client lunches.

Tax Invoice/Receipt

Any input tax claim needs to be sufficiently documented. This usually is an invoice containing all the relevant information. For smaller amounts, a simplified tax invoice — generally a receipt — is sufficient.

Lack of Digitization Makes the Process Difficult

To ensure all the potential GST input tax has been claimed, it is generally not good enough to just look at the ledger of a company or even the credit card/bank statement. Instead, this needs to be done by having a close look at the actual tax invoice or receipt.

The challenge here is that companies frequently have a significant number of small expense items, which makes this a very troublesome and potentially not worth the effort if not automated.

For the claims done, companies need to ensure they have kept the correct documentation with all the relevant information.

In particular for receipts, this requires keeping digital records because the information will most likely fade by the time of the next tax audit.

Having general expense invoices and receipts digitized allows for new processes that have a range of benefits for companies as highlighted below:

Automated assessment of input tax eligibility

Having the digitized record of the receipt stored can be used to automatically asses if a certain expense is eligible for input tax claim. Based on this information, all expenses, no matter how big or small, can be taken into account for input tax claims.

Ensure tax compliance

By analyzing all expenses, tax claims are only initiated if all relevant conditions from the tax authority are met.

Digital storage

By having all images of invoices and receipts digitized, there is no more risk of faded images. Similarly, retrieving past information becomes much simpler and more efficient.

Claim Input Tax Practical Impact

Any solution that will facilitate the optimization of tax claims has to start with digitizing receipts and invoices. This can be done easily with a mobile phone.

Before generating the booking, the image of a receipt is typically analyzed.

After that, the eligibility of expense for GST input tax claims will be determined.

Only if all conditions are met, the GST amount is reflected in the booking of the expense.

In addition, depending on the accounting solution you are using, digital copies of receipts and invoices can be stored there directly or within a third- party solution.

Even if you don’t perform the tax compliance during the digitization, it can be done as long as the tax period is not over.

Above all, as long as the information is digitally available, the process can be automated.

Financial Benefits

Optimizing the GST input tax can have an impact on the bottom line of a company. Given the fact that the GST is 7%, optimizing it on an amount of SGD 2,000/month brings an annual increase in profit of SGD 1,680.

Non-Financial Benefits

Ensuring compliance for input tax claims eliminates the risk of facing penalties and fines due to non-justified input tax claims.

In conclusion, automated processing increases the efficiency of any claims significantly. It also allows resources to be allocated to different functions.

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Posted by:Rene Hess

Inventor and Co-Founder @ Innovo42. Follow me on Twitter or LinkedIn