THE 2 DIFFERENT WAYS OF CALCULATING GST

Whether you are a consumer or a producer, taxes will always be a constant come what may. Taxes are defined as a mandatory contribution to state revenue levied by the government on workers’ income and business profits, or added to the cost of some goods, services and transactions. In this blog I will be covering 2 different ways to calculate your taxes. Both these methods are listed under the IRAS website as acceptable methods but your chosen method must be employed consistently. The methods are as follows:

  • Take the total amount payable for all items (excluding GST) x 7% OR
  • Add the GST amount for each line item

Some businesses may round their bills to the nearest 5 cents to facilitate cash payment by their customers. Whether a bill should be rounded up or rounded down to the nearest five cents is a business decision. You may refer to this link to find out more: https://www.iras.gov.sg/irashome/invoicing/

The table above shows an example of how Method 1 is used to calculate the taxes. Method 1 takes the total amount payable for all items and then applies the relevant taxations to the total. The subtotal of these amounts equals $99.05.

  • For Service-related Industries such as F&B, Spas and Beauty & Wellness, a service charge to the tune of 10% may be imposed depending on the company. In this case, the charge would be $9.91 (10% of $99.05, to the nearest cent).
  • Next a GST charge of 7% is levied on the total of the subtotal and the service charge. This is because the service charge takes precedence over the GST. In this case the GST amounts to $7.63 ($99.05 + $9.905 = $108.955, 7% of $108.955, round off to the nearest cent).
  • You would then obtain the total sum of $116.582 by adding the subtotal, service charge and GST.
  • To obtain the final amount, rounding down will get you $116.55, which in other words is a difference of $0.032.

For non Service-related Industries such as Retail, there will be no service charge and hence the GST would be applied to just the sum.

Method 2 meanwhile, applies the taxations to each individual item and then obtains the total. Let’s take a look at the first item which is the sushi set, where the base price of the item is $28.80.

  • The 10% service charge would amount to $2.880 (10% of $28.80).
  • The GST is then taxed on the total of the base sum and the service charge which would be $2.22 ($28.80 + $2.880 = $31.68, 7% of $31.68, round off to the nearest cent).
  • Then, obtain the total sum of $33.90 by adding the base sum, service charge and GST.
  • Lastly, by rounding down to the nearest 5 cents you would obtain the final amount of $33.90. Repeat this process for the rest of the items and total it. Then, add the total of the round down column and compare the 2 totals.

For non Service-related Industries such as Retail, there will be no service charge and hence the GST would be applied to just the sum. Repeat this process to obtain the total bill and the rounded off total, then compare the 2. Hence, it is evident that Method 2 involves rounding down to a more extensive degree compared to Method 1. This would mean cheaper prices for customers while at the same time business owners still continue earning the same base price. It’s a win-win situation!

In a nutshell, I feel that businesses should choose to round down instead of rounding up, for better customer satisfaction since they earn the same revenue anyway and the government receives the taxations. If you are in the market for a POS system, look no further than EPOS! Our system uses Method 2 in calculating taxes, placing customer satisfaction first and it helps in the calculation and rounding down of the figures. Our features are certain to suit your needs and with the assistance of government grants, a POS system is virtually cost-free! Do contact us for further information!

Interested to see what EPOS POS system can do for your business? Fill in your contact details and we’ll reach out to you to schedule a demo.


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