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Singapore should impose GST on online services: Experts

Much of online services is not taxed, due to the difficulty in tracking such digital transactions, but this could change in the near future, as tax authorities around the world look more closely at such activity. 

SINGAPORE: As more people shop online, some experts have said Singapore should start imposing Goods and Services Tax (GST) on such transactions, since the online market is worth nearly S$5 billion a year.

A tax on the digital economy is being considered by many countries, although enforcement could be tricky.

Online games generated almost US$250 million (S$345 million) of revenue in Singapore in 2015. It is forecast to grow by nearly 9 per cent per annum.

Much of online services is not taxed, due to the difficulty in tracking such digital transactions, but this could change in the near future, as tax authorities around the world look more closely at such activity.

Mr Robert Tsang, indirect tax leader at Deloitte Southeast Asia and Asia Pacific, said: "For services, this is a developing and moving target, so across the region, you see more and more governments become specifically concerned (about) online services, particularly with gaming. So Japan and Korea in the last year have issued special rules that require a business that is not in the countries to become a registered taxpayer and account for taxes, if the final customer is actually in those countries.

“So if you have a Japanese individual who is gaming, playing games, and is paying for that service to say a US business, that US business, since Oct 1 last year, is supposed to be accounting for consumption tax on those revenues.

“So these we see as being trends that are gradually growing, right across Asia Pacific. Japan is not the only example. Korea, from Jul 1 last year, started to have similar rules around mobile games. And no doubt here in Singapore, the IRAS (Inland Revenue Authority of Singapore) is looking very carefully at what these other countries are doing.

"Japan and Korea are not on their own, Australia, New Zealand, a couple of other countries, including our neighbours, Malaysia, are looking very carefully at how they should be fashioning their rules."

Experts said that tax rules are still in relatively nascent stages of development, and there are questions about how they can be effectively enforced.

LOWER PRICE OF TAXABLE ONLINE PURCHASES?

As for the larger online market for physical goods, one suggestion is to update the rules to cover online purchases of less than S$400 in value. Such purchases are currently exempt from the 7 per cent GST.

Said Mr Yeo Kai Eng, partner of indirect tax, goods and services tax, at EY: "GST was introduced in 1994 and we already had this exemption relief back then. Of course no one would have predicted the boom in online shopping. But things have changed. With this phenomenal growth in online shopping, the question is whether should they still have such exemption for low value items? Because these days, the value is low, but the volume is significant.

“Besides Singapore many countries have a similar exemption relief. They all face the same problem as our Singapore revenue authority. What do they do? Do they remove the limit totally? That means every cent that you import into the country will have GST? Or do they reduce the threshold or status quo?

“On the non-tax side, there's always this question of level playing field between local suppliers and overseas suppliers. There could be potential areas where some of our local suppliers could restructure and move operations offshore and supply from overseas.

"Now if this takes off, we could look at an employment impact, and if they shift everything overseas to the extent that they can, there could be loss of direct tax revenue as well."

To make tax collection on Internet sales more effective, experts said Singapore could require large online retailers to collect GST from Singapore residents on its behalf. The Government could also work with delivery firms to track purchases from smaller online retailers.

Looking ahead, tax experts said the Government will likely start imposing tax rules on online sales if the benefits can justify the extra cost of administration. As the online space is on an expansion drive, some have said it is not a matter of "if", but "when".