The taxman has stepped up moves to formulate ways of taxing businesses and individuals that buy services online from overseas providers. Two consultation papers that go to the heart of what has been a complex issue around the world were released by the Inland Revenue Authority of Singapore (Iras) yesterday.
The move follows the announcement by Finance Minister Heng Swee Keat in Monday's Budget speech that Singapore would implement goods and services tax (GST) on imported services from Jan 1, 2020, to ensure "that our tax system remains fair and resilient in a digital economy".
For example, in the case of business-to-consumer transactions, a consumer subscribing to cable TV from a local provider would be charged GST. If he subscribes to the same channels from a foreign provider, he would not pay GST under current rules.
The Iras said it will start an overseas vendor registration regime. This would require foreign suppliers with a global annual turnover above $1 million that supply more than $100,000 worth of digital services to consumers here to register, charge and account for GST.
Under certain conditions, "a local or overseas operator of electronic marketplaces" could also be considered a supplier for services being rendered on these platforms.
This could include an e-book supplier in Britain that lets customers download materials from its website, or a German-based accommodation site that charges service and booking fees to facilitate reserving hotel rooms.
The Iras also wants a reverse charge mechanism for business-to-business transactions. This would force firms to pay GST for services obtained from overseas suppliers, and to allow these firms to make input tax claims.
This would apply to companies that are GST-registered and not entitled to full input tax credit or those in GST groups which are not entitled to full input tax credit.
It would also apply to those non-GST registered businesses if the services bought from suppliers abroad exceed $1 million in a 12-month period and if these firms would not be entitled to full input tax credit even if GST-registered.
The consultation papers are on the Iras site. Responses are open until March 20.