Goods and services tax (GST) could soon be levied on e-commerce purchases as the Government looks to diversify its tax base and capture value from this fast-growing sector, experts said.
This could mean getting big e-commerce players to register for GST here if they sell to Singapore consumers, or getting the customers themselves to pay tax on the goods and services they buy online.
Their comments come after Senior Minister of State for Law and Finance Indranee Rajah told Bloomberg on Tuesday that e-commerce will likely come under the local tax regime soon. "You can imagine, 20 years from now, the way people purchase is very different, and by that time, online platforms will be mainstays, so if that is not part of the tax regime, there is going to be a lot of holes there," she said.
Finance Minister Heng Swee Keat had also said in the Budget earlier this year that the Government was studying ways to tax e-commerce.
Online purchases of goods and services under $400 are not taxed in Singapore now. "The $400 GST exemption threshold could be reviewed for the purposes of capturing online shopping transactions," said KPMG Singapore's head of tax Chiu Wu Hong. "Digital services (for example, music downloads, e-books) rendered by foreign companies could be brought into the GST net by using a 'reverse charge' mechanism, or by way of requiring them to register for GST if they were to provide to end consumers in Singapore."
A reverse charge mechanism requires the customer to account for tax on items from foreign suppliers.
PwC Singapore's Asia-Pacific indirect tax leader Koh Soo How noted that the Government has said the main intention of bringing online shopping within the tax regime is to make it a level playing field between local GST-registered retailers and overseas sellers.
"There are different collection models for imposing the GST on cross-border transactions. However, what most countries have settled on when taxing the digital economy is the vendor collection model, which is seen to be most feasible in terms of practicality and costs," he said. This means the overseas vendor is required to register for GST to collect and account for GST on sales to consumers in the local country.
Mr Yeo Kai Eng, a GST services partner at Ernst & Young Solutions, noted that this is common in several countries, which have introduced simplified GST registration for overseas suppliers to make it less onerous on e-commerce players.
"The key for Singapore is not to rush into it," he said. "Consultation with key stakeholders should be made to study the impact and effectiveness of any new measures to impose GST on overseas suppliers of digital services and low-value goods before they are introduced."