1 August 2012

The Inland Revenue Authority of Singapore (IRAS) has issued a “GST Guide for the Banking Industry” on 1 August 2012. General GST principles applicable to the banking industry as well as the GST treatment for the more common business models that the banks engage in are explained in the Guide.

The Fourth Schedule of the GST Act exempts the provision of financial services from GST. Banks in Singapore generally provide a wide range of financial services that may qualify for GST exemption under the Fourth Schedule to the GST Act.

However, exemption is not extended to services that facilitate the provision of financial services. Therefore, commission or fees arising from the arranging, broking, underwriting or advising services provided by banks are taxable for GST purposes. When banks provide exempt financial services to overseas customers, the supply of such financial services can be zero-rated if it falls within any of the descriptions of international services under section 21(3) of the GST Act.

As banks make both taxable supplies and exempt supplies, banks are unable to claim input tax incurred on their business expenses in full. For administrative ease, banks are allowed to use an industry-wide recovery rate to claim input tax incurred on their business expenses (excluding disallowed expenses under Regulation 26 & 27 of the GST (General) Regulations).

The Guide covers the spectrum of GST treatment for fee based services, credit card reward schemes, syndicated loan arrangements, risk participation arrangements and the recovery of expenses and fees in relation to loan contracts.

More details can be found on the IRAS website.

Source: This article was extracted from the Inland Revenue Authority of Singapore (IRAS) website. Visit www.iras.gov.sg for more information.