With e-commerce having taken off in Singapore, it was inevitable for a tax on transactions to be in the spotlight. While there is a clear case for this on grounds of both revenue and fairness, there are also significant practical difficulties to be resolved before e-commerce taxes can become part of any tax system.
E-commerce spending in Singapore will be close to $5 billion this year, a 12.4 per cent increase over last year, according to the Germany-based market research firm Statista. A 2016 report by Temasek and Google projected that by 2025, Singapore's e-commerce market will be worth $7.5 billion and will account for 6.7 per cent of retail sales. Currently much of this activity falls outside the tax net. E-commerce vendors based in Singapore, like their brick-and-mortar counterparts, are required to be part of the goods and services tax (GST) regime and thus are accountable to collect the tax. The same does not apply to sellers based outside Singapore. This puts locally-based vendors at a disadvantage vis-a-vis those based overseas. If the GST is raised in the future, the gap would widen further and revenue leakages would increase. Local entrepreneurs were thus heartened when the government signalled its plan to widen the tax on e-commerce.
There are two broad ways to do this. One would be to lower the current $400 threshold beyond which e-commerce transactions become taxable. The second would be to extend e-commerce taxation to vendors based overseas. Both are fraught with practical problems.
Lowering the tax threshold would lead to high compliance costs, especially for small vendors, many of whom are not GST-ready, while expanding the GST to overseas suppliers would come up against the problems of evasion, monitoring and collection. Cross-border e-commerce transactions are vulnerable to evasion because some such transactions are conducted within encrypted systems. Consumers can also use P.O. Box or package-forwarding services which enable them to indicate addresses in other countries when making online purchases. Collecting taxes from foreign vendors, who would need to be GST-registered, can also be problematic. This could be outsourced to providers of shipping or courier services in the case of physical products and to Internet Service Providers in the case of digital items. But such approaches will involve additional costs, which consumers will also have to bear.
These problems are not insurmountable - other countries have succeeded in levying taxes on cross-border e-commerce. Singapore must go about this carefully, bearing in mind the need to ensure ease of compliance and efficient tax collection, and the need to avoid disrupting cross-border transactions. It is more important to get it right than to do it quickly.