That $500 flower garland? It's subject to GST, says IRAS to KTV operators

A $500 flower garland might look like a generous show of appreciation. To IRAS, it also looks like taxable revenue. 

At some nightclubs in Singapore, patrons can buy flower garlands to present to hostesses and performers as a form of tipping.

But the venue operator, as the entity managing the entire flower garland offering and sales process, should be clear that the income from such activity is considered business revenue and taxable, said the Inland Revenue Authority of Singapore (IRAS).

"[Customers] are paying for the right to publicly honour a performing artiste and to partake in the entertainment experience provided by the establishment," it explained in an article published on its website. 

"This transaction constitutes a supply of service under the GST Act and is subject to GST."

The GST amount should be accounted for using the total sum paid by a patron for the garland, even if the operator and the giftee take different cuts of the sale.

For example, if a customer pays $500 for a flower garland and the nightclub keeps $300 while giving $200 to the performing artiste, GST still applies to the full $500.

Nightclubs should also properly record the revenue from flower garland sales as part of their gross income, and not get "creative" with income reporting, the agency warned.

"IRAS has identified cases where nightclubs attempted to artificially split income across multiple entities operating from the same premises."

"Where such arrangement lacks commercial reason and only serves to reduce taxable income or avoid GST registration, IRAS may regard this as tax evasion."

Operators should also take notice of withholding tax considerations when paying non-resident performing artistes.

According to IRAS, income earned by non-resident performing artistes, including salaries and their share of flower garland sales, is subject to a 15 per cent withholding tax.

Nightclubs are required to file and pay the withholding tax to IRAS by the 15th of the second month from the date of payment to non-resident performing artistes.

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