The proposed Singapore Goods and Services Tax (GST) hike was first announced in the Singapore Budget 2018. Revenues from the GST increase will be put towards supporting Singapore’s healthcare expenditure and senior welfare.
The COVID-19 pandemic however postponed the plan for a couple of years. Now that we’re finally emerging from the pandemic, the time to implement the GST hike is also upon us.
GST-registered businesses have to apply the GST change from 7% to 8% starting on 1st January 2023. Another GST hike will occur the following year from 8% to 9%. The price change has to be updated across all boards including e-commerce stores.
Consumers naturally will not be too happy about prices of goods being increased. As a business owner, it is up to you to balance your operating costs and consumer satisfaction. If you own an e-commerce store and have not updated your product prices yet, here’s what you can do.
Remember, businesses will have to deal with the GST update not only this year but also in 2024.
Option 1: Update price change automatically
E-store owners can set the system to calculate the final product price automatically based on the product’s base price and the new GST rate in 2023. This can be easily done by adjusting the tax rate in the e-store backend.
In PrestaShop, we can find this function by going to the backend menu at International > Taxes.
A product that costs $5.50 including 7% GST would have a base price of ~$5.14. After application of 8% GST, the same product would now cost $5.14 x 1.08 = $5.55. There is an additional $0.05 that your customer would now have to pay.
Option 2: Absorb the 1% GST increase and keep final price the same
As a retailer, you can also choose to absorb the 1% increase and keep your final price the same. This means that your customers will pay the same final product price as before. However, your business still has to account for the 1% GST increase in your tax returns.
Using the previous example, for a product that costs $5.50 including tax to remain the same after tax increase, it’s necessary to lower the base price.
Final price including 7% GST: $5.50
Price excluding GST: $5.14 (base price)
7% GST: $5.14 x 0.07 = $0.36
8% GST: $5.14 x 0.08 = $0.41
Tax increase of $0.05.
Base price lowered to: $5.14 – $0.05 = $5.09
Final price including 8% GST: $5.09 x 1.08 = ~$5.50
Mass updating of product base prices can be done through SQL queries on the store’s database. The customer in this case gets a better deal because the actual product excluding tax has gotten cheaper.
This option however may not be feasible for all businesses as it would mean that you are losing out on additional revenue each time someone buys a product from you. The additional tax amount has to come from somewhere, if not paid by the customer then you.
Option 3: Final price increases by 1% and rounded off to nearest 10 cents
Business owners in most cases would prefer to proceed with the increase in price. This option would be healthier for the business in the long-run. Customers also will not feel much of a pinch by the 1% increased price now compared to a price jump later on to 9% GST in 2024.
After updating the GST rate, not only will the product prices change but possibly also the discounts and shipping fees. You might also prefer to round up the prices as part of your marketing strategy instead of sticking to odd prices like $42.67 after tax. Hence this option is the most tricky of all as it requires more accounting coordination.
Product prices can be manually tweaked in the backend after the GST update. For bulk update, there’s the option to do an Excel import especially in PrestaShop at Advanced Parameters > Import.
The Excel spreadsheet should contain the new product prices after 8% GST. Excel importing is essentially updating the store’s database by replacing the old prices with the new ones. It is much easier to do importing through Excel instead of writing SQL queries for every product. Plus, Excel spreadsheet makes collaboration easier across departments.
The above are the most common scenarios that you’ll have to consider when the GST update comes into effect. Which option to choose largely depends on the business’s operating model, product pricing structure and how much time you’ve got to make changes to your e-store. It’s also important to consider how your customers will react to the changes.