Budget 2018

GST on imported services: Businesses assessing impact

Imported services amounted to $225 billion in 2016.
Imported services amounted to $225 billion in 2016.ST PHOTO: JAMIE KOH

Start-ups and SMEs likely to be affected more, says analyst

The new goods and services tax (GST) to be imposed on imported services in 2020 will hit financial institutions and some developers in particular, but the extent of the impact is still unclear, say experts.

Local firms are increasingly purchasing services such as software applications from overseas, but they do not pay GST if the provider of the services does not have a presence here. Once the tax is imposed, services imported by businesses will be taxed by what is called a reverse charge mechanism.

This would force firms to pay GST for services obtained from overseas suppliers, and allow these firms to make input tax claims.

Mr Koh Soo How, Asia Pacific indirect tax leader at PwC Singapore, expects the overall revenue to be collected from GST on imported services to be sizeable. "And this can only grow with the rapidly expanding digital economy," he added.

Imported services amounted to $225 billion in 2016, Singapore Department of Statistics data showed.

Finance Minister Heng Swee Keat said in his Budget speech on Monday that a new GST on imported services will apply to overseas suppliers without an establishment here.

These will include digital business-to-business services such as marketing, accounting, IT and management services, and business-to-consumer services like video and music streaming, apps, listing fees on electronic marketplaces, software and online subscription fees.

Ms Wendy Ng says about 10 per cent of Bloomdale's business cost goes to a US-based cloud hosting service every month.
Ms Wendy Ng says about 10 per cent of Bloomdale's business cost goes to a US-based cloud hosting service every month. ST PHOTO: LEE JIA WEN

Most of the large corporates The Straits Times spoke to said it is still early days to properly assess what impact this will have.

Ms Jane Lim, head of group tax at OCBC Bank, said the bank procures various services from overseas, including legal, consulting, IT, data and brokerage services from the United States, Europe and Asia.

"We are unable to ascertain the new measure's full impact... but based on our preliminary assessment, we do not expect it to be significant," she said.

Telco Singtel said it is working with its content partners to look into the impact of the policy.

United Overseas Bank economist Francis Tan said the impact may be felt deeply by start-ups and small and medium-sized enterprises.

"These companies are more likely to import services as they aim to keep costs low, which in turn make up a bigger share of their overall spending on services," he said.

"Many of them these days prefer to use Software-as-a-Service applications (where users pay to use software on a subscription basis) as this keeps initial investment costs low. A lot of these services are provided by overseas suppliers."

 

Coffee e-commerce platform Cafebond.com subscribes to software such as Intercom and Basecamp - both from providers based in the US.

"We get these services from overseas because they are usually better and cheaper," said chief executive Keyis Ng. The firm spends about $2,000, or 3 per cent to 5 per cent of its monthly expenditure on these subscriptions. Mr Ng does not expect the new GST to be unmanageable, but added: "As a start-up, every cost counts. We have to stay lean."

For online florist Bloomdale, the new GST charges would mean having to make a bigger upfront cash payment. About 10 per cent of its business cost goes to a US-based cloud hosting service every month.

"E-commerce is an important sales channel for us... so this is not a cost we can eliminate," said managing director Wendy Ng.

A version of this article appeared in the print edition of The Straits Times on February 22, 2018, with the headline 'GST on imported services: Businesses assessing impact'. Print Edition | Subscribe