Singapore Budget 2018: Govt's 'wait-and-see' stance on e-commerce tax a wise move

SINGAPORE has established itself as South-east Asia's success story and a potential economic powerhouse. It continues to be an example for countries looking to create a business-friendly environment and a culture of innovation and progress, especially for small businesses.

This position of strength has been reinforced in its 2018 Budget, particularly with its commitment to emerging technologies, along with grants and programmes to support SMEs. The government is also taking a cautious "wait and see" approach to e-commerce tax, which many were expecting to be announced as part of the Budget. That's a wise move.

While different forms of tax may be one way to increase revenues in the short term, having short-sighted tax structures can potentially harm e-commerce and SMEs in the long run.

Neighbouring countries and others beyond have long looked to Singapore to set the example in smart policy. While others such as Thailand and Indonesia are considering moves on e-commerce tax, Singapore is taking a measured approach by exercising caution, considering all options, and taking a long-term view. This provides a stable environment for businesses to continue investing in and growing the local economy.

Given the government's interest to implement smart regulation, grow the digital economy, and provide a fair playing field for businesses, there are several areas that Singapore should consider to ensure that any proposed tax structure on digital goods and services and low-value tangible goods, does not harm the potential of e-commerce growth and stand at odds with Singapore's ability to lead the region's digital economy.

A multilateral approach to VAT is essential

Given the difficulty and complexities of e-commerce transactions between countries, it would be a bold and somewhat unpragmatic move for any country to implement its own standalone cross-border tax structure.

In the Asia-Pacific region, tax regulations for digital goods and services are also being implemented in Japan and New Zealand. Australia had planned to roll out a programme in July 2017 which would remove tax exemptions for transactions below A$1,000 (S$1,035). This would require foreign sellers of all digital and low value tangible goods, even those worth as little as A$5, to collect and remit GST if they sell more than A$75,000 per annum into Australia.

This initiative was also aimed at "levelling the playing field" between domestic retailers and those who sell goods, both tangible and intangible, into Australia from abroad. However, Australia has found that the reality of implementing this programme to be challenging, forcing the government to delay implementation until July 2018.

This model presents several challenges, one of which is compliance. How would the Australian government ensure that overseas vendors are actually collecting and remitting GST? It is not an easy task. Instead of moving ahead alone, countries should work multilaterally through inter-governmental organisations such as the Organisation for Economic Co-operation and Development (OECD) and create consistency between one another on tax structures.

Keep compliance simple

For exporting SMEs, which are mostly online, the process for compliance and overseas vendor registration could be overwhelming, particularly if they have customers in several markets that require this in different forms. A watchmaker selling individual pieces of apparel online should not have to worry about selling enough timepieces or increasing prices to cover the cost of registration, or an extra layer of accounting and compliance. This itself would create an uneven playing field as larger companies would have the means to meet compliance requirements, but the onus on SMEs could be daunting and risk pricing them out.

Things become trickier when returns are involved as well. When customers return products, the vendor must return the full amount paid to the customer, including GST or VAT. In situations where sellers experience delays in the return of any taxes incurred, this delay could create a significant financial burden on SMEs.

Therefore, any cross-border taxation process must not overburden small businesses, either through being too confusing or too expensive, and must ensure GST/VAT recovery systems are fast and simple. Governments should be doing all they can to help SMEs thrive, and any move that hampers the potential growth of the SME community is a short-sighted one.

The digital economy is the product of developments in technology and commerce. The business models that have emerged are mostly in uncharted territory, and vary from one another. They cannot be grouped together as a whole. Governments should collaborate with the industry to work out the smartest, fairest and most effective way of implementing taxation.

Smart regulation

As a representative of the world's leading technology companies in the region, the Asia Internet Coalition has the collective expertise and resources to help governments develop well-informed and effective tax policies. We want to bring governments and Internet companies together to create smart regulation and policies that allow everyone to benefit from the digital economy.

The themes for Asean this year are innovation and resilience. As Asean chair for 2018, Singapore holds a critical mandate in setting the benchmark for progress in digital regulation and the growth of millions of SMEs in the region. In South-east Asia, the potential of e-commerce is enormous and, therefore, governments should take a cautious approach to taxation and other issues that could diminish the momentum of e-commerce and impact SMEs in the region.

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