SINGAPORE: The Goods and Services Tax (GST) will be imposed on all imported goods from 2023 after a Bill was passed in Parliament on Tuesday (Nov 2).
Under the Goods and Service Tax (Amendment) Bill, GST will be extended to low-value goods worth up to S$400 that are imported via air or post from Jan 1, 2023.
Imported goods brought in via sea or land, and items valued above S$400 that are brought in via air or post, are already subjected to GST.
GST will also be introduced for business-to-consumer (B2C) imported non-digital services, such as live interaction with overseas providers of educational learning and telemedicine.
The changes will level the playing field for Singapore businesses as overseas suppliers will be subjected to the same GST treatment as local suppliers, said Second Minister for Finance Indranee Rajah in her second reading speech in Parliament on Tuesday (Nov 2).
These measures were previously announced by Deputy Prime Minister Heng Swee Keat in his Budget speech earlier this year.
Another change will see an update to the GST treatment for supplies of media sales.
Such sales refer to the sale of advertising space for hardcopy print and outdoor advertisements, the sale of advertising airtime for broadcasting via TV and radio, and the sale of media space for web advertising via email, Internet or mobile devices.
From Jan 1 next year, the GST treatment will be based on where the customer and where the direct beneficiary of the service belongs, rather than where the advertisement is circulated.
“SINGAPOREANS STILL REELING”
During the debate, Member of Parliament (MP) Saktiandi Supaat (PAP-Bishan-Toa Payoh) noted that charging GST on lower-cost goods would affect lower-income households.
“Some Singaporeans buy products from overseas that they cannot find locally. They will now have to contend with significantly higher costs as a result of increasing shipping costs and GST costs,” he said.
“For the lower-income households, every cent in savings counts. Being driven towards local options that are initially more expensive than its foreign counterpart may be a win for the local retailer, but for the low-income consumer, it would feel like a loss.”
A similar sentiment was echoed by MP Yip Hon Weng (PAP-Yio Chu Kang), who emphasised the need to provide more support for lower-income households amid the change.
“I am concerned that imposing GST on all incoming overseas goods will lead to an increased burden on these residents. Has the Government done research or sought feedback on how foreign online retailers intend to handle this tax increase? Will it be absorbed? If not, how much of it will be passed on to consumers?” he asked.
Mr Saktiandi noted that the move would also happen in tandem with an impending increase in local GST rates, which is expected to take place before 2025.
“Singaporeans are still reeling from the economical impact of the pandemic. So all these possible factors that may contribute to increased expenses may be very difficult to be taken as the normal scheme of things, even if the policy is necessary and many countries have already implemented similar moves,” said Mr Saktiandi.
In response, Ms Indranee noted that the bulk of consumption by individuals such as food, utilities, transport, education and healthcare will not be affected by the change.
“These goods and services are typically bought from local suppliers rather than from overseas suppliers and thus are not affected by the extension of GST to low-value goods imported via air or post and B2C imported non-digital services,” she said.
“We have said that the Government will continue to absorb GST on publicly subsidised healthcare and education. To support lower-income Singaporeans, we already have other permanent schemes such as the Workfare Income Supplement, Silver Support and ComCare. As part of our annual budget, we have also provided additional support, such as Service and Conservancy Charge rebates and top-ups to Child Development and Edusave accounts.
“The Government remains committed to supporting Singaporeans, with more help given to the lower-income.”
In his speech, MP Louis Chua (WP-Sengkang) said he agreed with the need to roll out GST on low-value goods and imported non-digital services, but added that the target implementation from the start of 2023 coupled with the “sooner rather than later” hike in GST rates could mean a “double whammy” for consumers.
Mr Chua said he could not support a GST hike, which he described as an “unnecessary burden” on Singaporeans.
“We must have the courage to make the difficult decisions that are necessary to uphold a culture of fiscal responsibility, even if it means walking back on a prior decision made under very different circumstances. It is not too late to change course, and I strongly urge the Government to reconsider the necessity of a GST hike,” he said.
Ms Indranee responded that it was not really the time to have a debate on whether or not to raise GST as a whole, because the Bill was focused on a very specific aspect – low-value goods.
However, she noted that it was important to consider Singapore’s revenue and expenditure situation.
“When you consider the pandemic, we had five Budgets in 2020. Every time the MTF had to put in place restrictions that affect businesses, we put in place support. So you cannot look at just one single item and say that this by itself, please change, it is very onerous. You do have to look at the bigger picture, and you cannot have such narrow tunnel vision,” she added.
“The other takeaway is really that this Government will always make sure that whoever is in need, in genuine need, will have support. And the only way you can do that is to have diverse revenue sources which are sustainable; and for recurrent expenditure, to make sure that you have recurrent revenue.”
“A LEVEL PLAYING FIELD”
One of the reasons for the changes was to address a “gap” which puts local businesses at a disadvantage, Ms Indranee noted.
“The introduction of GST for low-value goods imported via air or post and for imported B2C non-digital services is necessary to ensure a level playing field for our local businesses and allow them to compete effectively. Overseas suppliers of goods and services will be subject to the same GST treatment as local suppliers,” she said.
“These amendments will also keep our GST system resilient in a growing digital economy.”
Noting that there has been a “significant increase” in interest in online shopping, Mr Saktiandi pointed out that the borderless nature of the Internet would mean that Singaporeans also have easy access to foreign online marketplaces.
“Local businesses would now find themselves competing with online sellers from overseas, who are often more experienced, and able to offer their goods and services at lower prices due to lower production costs and lack of taxes,” he said.
“The Government’s move to apply GST to lower-value overseas imports via air is highly anticipated and welcomed by the local businesses that I have spoken with. The business owners believe reducing the cost differences between buying products locally and overseas would to some extent help to drive the consumer traffic inward.”
MP Sharael Taha (PAP-Pasir Ris-Punggol) noted that amid the rise in online shopping, Singapore’s small retail merchants are “struggling”.
He explained that during a recent discussion with the Merchants Association at Pasir Ris, they shared that since the pandemic, business had gone down by up to 40 per cent to 50 per cent.
“The merchants also shared that some customers are now browsing the physical item in the shop, trying out the items, enquiring about the items but when it came to payment, some customers whip out their handphones and ask the shop owners for a lower price compared to what is available online. The sale of these items used to be the bread-and-butter of our small retail merchants, but it is no longer,” he explained.
“With people shopping less frequently in physical stores and the unfair advantage that overseas suppliers have by not paying GST, our neighbourhood businesses are struggling to make ends meet. Hence our small retail merchants are hoping for a level playing field and the introduction of GST on low-value goods from overseas will be one of the enablers for that.”
THE ISSUE OF COMPLIANCE
Questions were also raised by MPs on how the new measures would be implemented.
Mr Saktiandi noted that policies must be “pragmatic and enforceable”.
“With the sheer number of independent foreign merchants that offer direct shipping to Singapore, how will this policy be implemented? Would GST be paid to the merchant, or would consumers make the payment when the purchase reaches local customs?” he asked.
Mr Yip also noted that there could be a “disproportionately” large number of low-value transactions as compared to high-value transactions, and the Government may require disproportionately more resources to ensure that individuals comply with the new GST regulations.
“How will the Government ensure that there are adequate resources to enforce the new policies in an efficient manner?” he asked.
“There are foreign companies with a large online shopping presence in Singapore such as Amazon, Taobao and Lazada. These companies allow smaller third-party companies to sell on their platform. Have the relevant stakeholders engaged these companies to collaboratively resolve the issue of compliance? What if the foreign retailer withholds GST payment? How will the Government deal with overseas companies who fail to comply with our GST regulations?”
In her response, Ms Indranee noted that the new measures to impose GST on low-value goods will be implemented by “widening the scope” of Singapore’s existing overseas vendor registration (OVR) and reverse charge (RC) regimes.
These regimes are not new and have been successfully implemented from the start of last year, she added.
Ms Indranee also explained that when consumers check out their purchases, GST-registered overseas vendors will charge and collect GST on the low-value goods at the point of purchase when the order is confirmed.
“This is similar to how since 1 January 2020, GST is collected on imported B2C digital services,” she noted.
“Where GST has been charged and collected by the overseas vendor on the low-value goods, the overseas vendor will include the relevant information on the GST collected in the commercial document which is passed through the logistics chain. Import GST will not be payable at the border when this information is furnished to Singapore Customs.”
On compliance with the new GST regime, Ms Indranee noted that the regime is already in place for overseas vendors that sell B2C digital services to local consumers.
“This has helped IRAS gain experience in administering and enforcing the regime. The rules of our OVR regime are consistent with those of other jurisdictions. This makes it easy for overseas vendors to comply … Many of these overseas vendors are familiar with similar GST or Value Added Tax (VAT) obligations in other jurisdictions,” she said.
“Our experience with OVR thus far since 1 January 2020, and the experience of other jurisdictions with OVR show that these multinational businesses do comply with GST or VAT obligations of the jurisdictions they make supplies to.”
IRAS will also make use of “various information sources” to identify and engage overseas vendors that should be GST-registered and verify their GST reporting after GST registration, she added.
“In the event of non-compliance, the existing penalty and enforcement regime under the GST Act will apply.”