Understanding GST on Discounts and Rebates in Singapore

Understanding GST on Discounts and Rebates in Singapore | Bestar

GST on Singapore Discounts and Rebates

Understanding GST on Discounts and Rebates in Singapore

Navigating Goods and Services Tax (GST) in Singapore can be tricky, especially when price reductions like discounts, rebates, and coupons enter the mix. For businesses, getting the Value of Supply right is critical to staying compliant with IRAS (Inland Revenue Authority of Singapore).

Here is a comprehensive guide to how GST applies to various price reductions and how you should treat them in your accounting.

1. Cash and Trade Discounts

In most cases, GST is only chargeable on the net amount payable (the discounted price) after the discount is applied.

Pre-Settlement Discounts

These are discounts offered at the point of sale (e.g., "10% off for store opening").

• GST Treatment: You charge GST on the final price after the discount.

  
  

• Example: If a product costs $100 and there is a 10% discount, GST is calculated on $90.

Prompt Payment Discounts

These are discounts offered if a customer pays within a certain timeframe (e.g., "2/10, net 30").

• GST Treatment: IRAS allows you to calculate GST on the discounted price, even if the customer eventually fails to pay early and pays the full amount. This simplifies invoicing.

2. Rebates and Credit Notes

Rebates are often granted after the initial sale has been invoiced and paid for, usually based on volume or performance.

Volume Rebates

If a customer receives a rebate because they met a certain purchase threshold:

1. The rebate reduces the original value of the supply.

   
   

2. The seller should issue a Credit Note to the buyer.

   
   

3. The Credit Note must show the reduction in GST originally charged.

   
   

Key Note: If both parties agree in writing, you may issue a credit note "without GST" for specific administrative reasons, but generally, GST must be adjusted.

3. Vouchers and Coupons

The GST treatment depends on whether the voucher is a Multi-Purpose Voucher (MPV) or a Single-Purpose Voucher (SPV).

Voucher Type	Description	GST Treatment
Monetary/MPV	Can be used for various items (e.g., a $50 Takashimaya voucher).	No GST when the voucher is sold. GST is charged when the voucher is redeemed.
Discounts/Coupons	A coupon that gives "20% off" or "$5 off."	No GST value on the coupon itself. GST is charged on the net amount paid by the customer.
Free Giveaways	Items given away for free without any payment.	Generally, no GST is charged if the cost of the gift is below $200. If it exceeds $200, "Deemed Supply" rules may apply.

4. Manufacturer Rebates

This is a common point of confusion. If a manufacturer pays a rebate directly to a retailer's customer:

• The retailer still charges GST on the full price paid at the register.

• The manufacturer's rebate is seen as a separate financial flow and does not usually reduce the GST value of the original sale at the retail level.

Compliance Checklist for Businesses

• Invoicing: Ensure your tax invoices clearly show the gross price, the discount amount, and the final GST-inclusive total.

  
  

• Credit Notes: When issuing rebates, ensure your Credit Notes reference the original invoice numbers.

  
  

• Rounding: Remember that GST should be calculated on the total payable amount, rounded to the nearest cent.

Accuracy Matters

Errors in GST reporting can lead to penalties from IRAS. If you are handling high-volume transactions with complex rebate structures, it is often best to automate your GST logic within your accounting software (like Xero or QuickBooks) to ensure the 9% rate (as of 2024/2025) is applied correctly.

The journal entries for a discount given depend on the type of discount (trade or cash/prompt payment) and when it is provided. 

1. Trade Discount (Given at the time of sale)

A trade discount is a reduction in the list price agreed upon at the time of supply and is already factored into the net price on the tax invoice. GST is charged on this net price. 

• Journal Entry: The discount is not recorded in the books of accounts; the sale is recorded at the net discounted amount. 

Account	Debit	Credit
Accounts Receivable (Customer)	$1,800
To Sales Revenue		$1,651.38*
To Output Tax (GST Payable)		$148.62*
Being sale of goods at a discounted price (GST at 9%)

*Example: For a $2,000 item with a 10% discount ($200), the net price is $1,800. The GST amount (assuming a 9% rate) is approximately $148.62, and the revenue is $1,651.38.

2. Cash/Prompt Payment Discount (Given after the time of supply)

A cash discount is offered as an incentive for early payment and is given after the initial invoice is issued. The original invoice would have charged GST on the gross amount. If the customer meets the prompt payment terms, you issue a credit note to adjust the selling price and the GST amount. 

• Journal Entry at the time of initial sale (Gross amount $2,000 + GST $180):

Account	Debit	Credit
Accounts Receivable (Customer)	$2,180
To Sales Revenue		$2,000
To Output Tax (GST Payable)		$180
Being initial sale on credit (GST at 9%)

• Journal Entry when the customer pays within the discount period and takes the discount (e.g., 5% discount on $2,000, which is $100 + related GST adjustment): You issue a credit note for the discount amount plus the associated GST adjustment (e.g., $100 discount + $9 GST adjustment = $109 credit note total). 

Account	Debit	Credit
Sales Discounts Allowed (Expense/Contra-Revenue)	$100
Output Tax (GST Payable)	$9
To Accounts Receivable (Customer)		$109
Being credit note issued for cash discount taken by customer

• Journal Entry to record the receipt of payment:

Account	Debit	Credit
Cash/Bank	$2,071
To Accounts Receivable (Customer)		$2,071
Being cash received after applying discount credit note

The customer (if GST registered) must reduce their input tax claim accordingly based on the credit note received. You will also make the corresponding adjustments in your GST return for the period in which you issue the credit note. You can find more information on the official IRAS website on GST on Discounts and Rebates. 

• GST on Discounts and Rebates - IRAS

  12 Jun 2025 — Discounts given to customer. Sales discount. When you offer your customers a discount on the selling price of your good...

  IRAS

  
  

How Bestar Singapore Can Help You Navigate GST on Discounts and Rebates

Understanding GST on Discounts and Rebates in Singapore

Managing Goods and Services Tax (GST) in Singapore is a high-stakes task for any business. With the current GST rate at 9%, even a small error in calculating discounts or rebates can lead to significant compliance risks, IRAS audits, and financial penalties.

Bestar Singapore provides expert GST advisory and accounting services designed to simplify these complexities. Here’s how our team helps your business maintain a competitive edge while staying fully compliant.

1. Professional Interpretation of the "Value of Supply"

The most common mistake businesses make is calculating GST on the gross price rather than the net price. Bestar’s tax specialists ensure you apply the correct logic for every transaction type:

• Cash & Trade Discounts: We help you structure your billing so GST is only applied to the net amount payable, reducing your tax liability and keeping prices competitive.

• Prompt Payment Discounts: We guide you in using IRAS-approved methods to calculate GST on the discounted price, even if the customer eventually pays the full amount, simplifying your administrative workflow.

2. Managing Complex Rebates & Credit Notes

Rebates given after a sale (like volume-based incentives) require specific documentation to adjust the GST previously paid. Bestar assists you in:

• Issuing Compliant Credit Notes: Ensuring every credit note matches the original tax invoice as per IRAS requirements.

• Volume Rebate Strategy: Advising on whether to issue rebates with or without GST adjustments based on your specific business agreements.

3. GST Treatment for Vouchers and Coupons

The rules change depending on whether you issue a Single-Purpose Voucher (SPV) or a Multi-Purpose Voucher (MPV). Bestar provides a clear framework for:

• Identifying the point of taxation (at sale vs. at redemption).

• Accounting for "free gifts" to avoid the Deemed Supply trap, where you might inadvertently owe GST on items valued over $200.

4. Why Partner with Bestar Singapore?

As a leading provider of Audit, Tax, and Advisory services, Bestar offers an integrated approach to your financial health.

Service Feature	Benefit to Your Business
IRAS Query Support	We act as your liaison, handling clarifications and audits directly with the tax authorities.
GST Health Checks	Periodic reviews of your accounts to identify and fix errors before they become penalties.
Customized Training	We train your staff on how to record discounts and rebates correctly in your ERP or accounting software.
Global Perspective	Ideal for businesses with international dealings, ensuring cross-border rebates are handled correctly.

"Our goal is to relieve you of the tedium of tax compliance so you can focus on business growth." — The Bestar Tax Team

Don't let complex GST rules slow down your operations. Whether you are a retailer offering seasonal discounts or a wholesaler providing year-end rebates, Bestar ensures your numbers are accurate and your business is protected.

Get Started Today

Would you like us to perform a GST Health Check on your current discount and rebate workflows?

Contact Bestar Singapore:

• Email: admin@bestar.asia

• Phone: +65 6299 4730

• Address: 23 New Industrial Road, #04-08 Solstice Business Center, Singapore 536209