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Singapore Budget 2018: GST walls for e-commerce without borders
NETFLIX has an office in Singapore, but it does not collect goods and services tax (GST) for its subscriptions now.
Ordinarily, a company that sets up shop in Singapore, and sells services to consumers here, would be charging GST on behalf of the government once they make S$1 million in sales. This consumption tax bill is usually passed on to customers.
But tax experts point out that streaming services and other digital-services providers do not fall neatly into this state of play, because the subscriptions to the digital content are likely booked in the global headquarters of these companies, not at the local offices of subscribers.
The loophole is soon to close here. The Singapore government plans to set a 2020 deadline in charging GST on imported services, which would include digital media such as movies, e-books, and apps. This is often known as the "Netflix tax", and was announced in Budget 2018.
Lam Kok Shang, KPMG's head of global indirect tax services Singapore, observed that Netflix's Asia-Pacific headquarters is not likely where revenues are being booked. What several of these companies that sell digital content likely have in Singapore is an office that offers supporting services such as marketing.
Likewise, Koh Soo How, Asia-Pacific indirect tax leader, PwC Singapore, noted that e-commerce companies would not get away with collecting GST even if they have an office here. What counts more for these global digital media firms is the nature of the Singapore business.
Firms that qualify are due to be charged Singapore's GST by 2020. GST here is now at 7 per cent, but will rise to 9 per cent in the earlier part of 2021 to 2025, Finance Minister Heng Swee Keat has said.
KPMG's Mr Lam noted that digital services firms due to be charged the GST are expected to pass on the cost to consumers, but added that consumers are unlikely to stop paying altogether for such digital services, given the wider choices that they offer.
For consumers, a basic Netflix subscription now will cost about 77 Singapore cents more per month, if GST kicks in, and by 2025, just under a dollar when GST hits 9 per cent.
The tax move comes as Singapore has signed onto OECD's Base Erosion and Profit Shifting (BEPS) project, an expansive set of strategies meant to promote greater fairness in taxation policies globally. BEPS calls for, among other things, signatories to create greater tax parity to close loopholes in a digital economy.
Singapore will follow jurisdictions such as Australia, the European Union, Japan and Korea in taxing services sourced from abroad.
This will make Singapore the first country in South-east Asia to introduce a tax on the digital economy. But Thailand, Malaysia and Indonesia are already considering such a tax as well, said PwC's Mr Koh.
For businesses selling imported services to consumers, such as media streaming platforms, they will need to be registered with the taxman here, and collect GST.
This will only apply to overseas vendors whose annual global turnover exceeds S$1 million, and whose sale of digital services to consumers in Singapore is more than S$100,000.
Netflix, which globally raked in US$3.3 billion in revenue in the last three months of 2017 alone, has not published its numbers on its subscriber base in Singapore. But Netflix subscribers here are devoted to their TV, devouring a TV series in an average of three days, a full day faster than the global average.
Netflix declined comment on the GST announcement this week, noting that the rules only come into effect in 2020.
Another popular media streaming service here is Spotify, which is loss-making, but clocked about US$3 billion in revenue globally in 2016.
App store operators such as Apple and Google are also set to be held responsible for accounting for GST on behalf of the app developers, tax experts said.
The Inland Revenue Authority of Singapore has called for feedback, with the public consultation to close on March 20.
Singapore is still reviewing the decision on taxing low-value imported goods, given the ongoing international discussions on how GST can apply, said Mr Heng. Currently, only goods bought from overseas that are worth more than S$400 attract GST. Australia is set to be the first in the world to tax low-value imported goods this year, having already postponed the implementation by a year.
PwC's Mr Koh noted that at this point, there is no example as yet of an effective means to collect GST from goods being shipped to consumers.
It is unclear how effective it would be to have overseas vendors register for GST in Singapore. It also remains unclear if Singapore should set a sales threshold that would qualify certain overseas vendors to charge GST.
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- Levying GST on imported services a big step to broaden tax revenue stream
For more Budget 2018 stories visit bt.sg/budget18