SINGAPORE: In less than a month, the goods and services tax (GST) will be levied on imported services. These range from marketing and IT services procured by businesses to music and video streaming platforms used by individual consumers here.

The changes, which will “level the GST treatment for all services consumed in Singapore”, was first announced by Finance Minister Heng Swee Keat in 2018 during his Budget speech. Currently, only services from a local supplier are subject to GST. 

Experts have said the taxing of business-to-business (B2B) services from abroad will only impact specific industries here, such as banks, insurers and charities. Those from these industries that responded to CNA’s queries said they do not expect significant cost increases.

As for the GST levied on consumer-centric overseas digital services, also commonly dubbed the so-called “Netflix tax”, it remains to be seen if that will hit the pockets of individual consumers.

Overseas providers of digital services have to register for GST under an overseas vendor registration regime and more than 100 have done so ahead of the changes on Jan 1, the Inland Revenue Authority of Singapore (IRAS) said on Monday (Dec 9).

WILL CONSUMERS SEE PRICE INCREASES? 

American video streaming giant Netflix is among those that have registered as an overseas vendor. 

Only those with an annual global turnover of more than S$1 million and sells more than S$100,000 worth of digital services to consumers in Singapore in a 12-month period are required to do so.

Those registered will have to charge GST when selling digital services to consumers – individuals and non-GST registered businesses – in Singapore from January 2020.

Digital services are those provided over the Internet or an electronic network, IRAS said. Apart from content streaming services, it also includes downloadable digital content like mobile apps and electronic books, anti-virus and office software programmes, as well as website hosting and data management.

Under certain conditions, operators of electronic marketplaces may also be regarded as suppliers of the digital services made by overseas vendors that are listed on its platforms, according to IRAS website.

READ: GST on imported digital services: 5 things to know

Experts say it remains hard to tell if overseas vendors will automatically pass on the tax charges to consumers.

“From our experience, some might and some will not,” said Deloitte’s indirect tax leader Richard Mackender.

“These could be (businesses) that are locked into one- or two-year subscriptions and it may not be that easy for them to just pop in the extra charges. They might absorb (the GST) for a while.”

Responding to CNA’s queries on whether it will be adjusting its price plans, Netflix’s spokesperson said: “We have no new updates on pricing.”

With operations around the world, Chinese Internet behemoth Alibaba said it understands and respects the guidelines implemented by individual markets. It will “respectfully comply with all regulations”, it added.

A Dec 6 report by the Nikkei Asian Review said Google will start collecting tax on its digital services in Malaysia starting next month, when the country officially rolls out a six per cent digital service tax on foreign providers.

When asked for its plans in Singapore, the Google spokesperson would only say: “We pay all of the taxes due and comply with the tax laws in every country we operate in around the world. As laws evolve, we will of course comply with new regulations.”

Other overseas digital services providers, such as Spotify, Apple, Amazon and McAfee, declined comment or did not respond when contacted.

COST INCREASE MANAGEABLE FOR SOME FIRMS, CHARITIES

The other change involves B2B services that have been increasingly procured from overseas by companies here. These include marketing, accounting, IT and management services.

Similarly, local businesses do not pay GST for such services sourced from abroad now.

But come Jan 1, they will have to do so under a reverse charge mechanism.

This mechanism means that instead of having overseas providers collect GST, local businesses will have to “step into the shoes of their providers” and pay GST to the tax authority directly on the services it imports, said PwC Singapore’s GST Leader Kor Bing Keong.

Most businesses would not be impacted as they would be eligible for GST refunds when they buy imported services, as long as these are regarded as inputs for taxable supplies of goods and services.

The impact will be contained to specific industries, such as banks, insurers, finance companies, as well as mixed and residential property developers, experts said.

This is because the likes of banks and insurers sell goods and services – bank loans or life insurance – that are exempted from GST. This means they cannot claim GST refunds in full. 

For instance, the recovery rate for banks ranges from 72 per cent for a full-license bank to around 94 per cent for offshore and wholesale banks, said Mr Kor.

“What that means for businesses, especially in the financial services sector, is that there’s likely to be more cost because the GST they are going to incur on these imported services is not going to be recoverable in full,” said Mr Mackender.

Budget 2018: GST to be imposed on digital services from 2020

OCBC’s head of group tax Jane Lim said the local bank currently purchases brokerage services, online courses, as well as subscriptions to financial information and IT services from overseas vendors.

“We have engaged all our business units to identify which services will be subject to the GST reverse charge, and how to identify such transactions efficiently, so as to reverse the charge in a timely manner.

“We have briefed the various business units to assist them with completing the data they must provide when making payments for such services,” she said in a emailed response.

The new tax “will incur some additional costs” but “the amount is small” compared to the bank’s total expenses. As such, this will not impact OCBC’s procurement plans, which are “mostly determined by the availability of these services and the competency of the service providers”, added Ms Lim.

At Aviva Singapore, it only deals with “a small number of overseas suppliers” hence the insurer does not expect significant impact on its business processes.

Eleven other companies contacted by CNA, including DBS, UOB, Mapletree and AIA, declined comment or did not respond to queries.

Charities that receive non-business receipts may also be impacted if they rely a lot on imported services, experts said.

The SPD, formally known as the Society for the Physically Disabled, said it expects “some impact” as it engages professionals from abroad for training or consultancy services.

But it does not foresee a significant increase in cost, administrative work or any changes in procurement plans as the number of such services is “relatively minimal”, according to chief executive officer Abhimanyau Pal.

Others, such as the National Kidney Foundation and Singapore Red Cross, said the new tax are not applicable as they do not consume imported services.

MAINTAINING A FAIR TAX SYSTEM

When announcing the tax on imported services in Budget 2018, Mr Heng had said this is to ensure that Singapore’s tax system remains “fair and resilient in a digital economy”.

The changes would “ensure that imported and local services are accorded the same treatment”.

When implemented, the tax is expected to bring in around S$90 million of tax revenue a year, Mr Heng had added then.

READ: Commentary: What taxation for the digital age ought to consider

Tax experts say this estimated GST collection is “not significant”.

“Compared to our GST collection of about $12 billion, this is a drop in the ocean,” said Mr Kor, stressing that the changes are aimed at closing the gap between local and foreign service providers and preparing Singapore for the future.

“The trend moving forward is that there will be more and more purchases online. If you don’t start somewhere now, it may be too late in future so start somewhere and as you grow, your tax revenue will grow together,” he added.

Echoing that, Mr Mackender described the changes as “part of making sure that Singapore is an effective, stable and secure place to do business” amid a broader discussion around the world about digital taxes.

Taxing digital services is not unique to Singapore, with similar measures having been taken by countries like Australia, Japan, New Zealand and South Korea from as early as 2015, IRAS said on Monday.

It added that businesses and consumers are responsible for providing complete and accurate information to registered overseas digital service providers who use these information to determine if their customers reside in Singapore.

“It is a serious offence to provide incorrect or false information to overseas digital service providers to avoid paying GST on digital services,” it said.