GST on imported digital services: 5 things to know

GST on imported digital services: 5 things to know

A pedestrian uses the Uber app in the financial district of Singapore
A pedestrian uses the Uber app in the financial district of Singapore. (Photo: AFP/Roslan Rahman)

SINGAPORE: Come Jan 1, 2020, a goods and services tax (GST) will be imposed on imported digital services, Finance Minister Heng Swee Keat announced in his Budget 2018 speech on Monday (Feb 19). This, he explained, is to ensure that imported and local services are “accorded the same treatment”.

With the advent of technology and the digital economy, it has become increasingly common for services consumed in Singapore to be obtained from overseas suppliers that do not have a presence here, the Ministry of Finance (MOF) explained further in a separate media release.

So what does this latest announcement mean? What will be the impact on consumers and service providers? We shed light on some of these questions.

Q: Which businesses will be impacted by this announcement?

The GST on digital services targets two categories of services: Business-to-business (B2B) types such as marketing, accounting, IT and management, as well as business-to-consumers (B2C) ones such as video and music streaming, apps, listing fees on electronic marketplaces, software and online subscription fees.

Q: What is overseas vendor registration?

The overseas vendor registration is required for B2C imported services, which means service providers and electronic marketplace operators such as app stores will need to be registered with the Inland Revenue Authority of Singapore (IRAS).

Specifically, those required to register are vendors whose annual turnover exceeds S$1 million and the sale of digital services to consumers in Singapore exceeds S$100,000.

Q: How will this tax impact B2C digital service providers?

According to Mr Adrian Lee, research director at Gartner, these providers will face increased operational costs for compliance with the new tax regime. They will need to ramp up to handle GST reconciliation with IRAS once they cross the S$100,000 threshold, he explained.

“Coupled with the proposed increase in GST to 9 per cent across all businesses from 2021, this hits the digital service providers domiciled both in and outside of Singapore with additional margin pressures as they strive to remain profitable,” Mr Lee said.  

“Needless to say, this will dampen the growth of digital services in Singapore but should not constrain it, as consumers progressively digitise their services.”

He did note that it was a “positive sign” that the Government is giving these digital businesses early notice before implementing the tax.

About 1,000 companies offering B2B digital services, as well as 100 firms in the B2C space, are expected to be affected by the new tax, Channel NewsAsia understands.

Microsoft told Channel NewsAsia that for its cloud-based Office 365 productivity suite, it is already billing locally from Singapore, with applicable taxes. "As such, there is no expected impact," a company spokesperson said. 

Netflix and Google declined to comment for this story.

Q: How will this tax impact consumers?

It’s hard to tell, given that it will be a company's prerogative to decide how much of the tax it wants to apportion to consumers.

Ms Gan Hwee Leng, tax partner at KPMG Singapore, pointed out that the implementation of GST for imported services aligns Singapore’s GST framework with those of other countries, and puts local and overseas service providers on a level playing field.

“(However, this) translates to higher cost for local consumers,” she said.

Mr Lee said that in Gartner’s research findings, 59 per cent of Singaporeans have reported purchasing a product or service online, and B2C apps such as Grab, Uber and Spotify occupy the top 10 spots with the most monthly active users.

When implemented, Singaporeans may choose to lower their spending on taxable digital services that may be difficult to replace such as ride-hailing apps like Uber, or switch to services that are not taxed, the research director predicted.  

“I do not think consumers will stop buying online. They will simply choose to spend more prudently,” Mr Lee said.

Q: How can consumers find out more on the GST for digital services?

On Tuesday, the Inland Revenue Authority of Singapore (IRAS) released a draft e-tax guide on GST for the import of digital services for both B2B and B2C transactions.  

Source: CNA/kk

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