Proposed changes to Singapore GST system would level playing field for local businesses

Out-Law Analysis | 27 Feb 2017 | 2:37 pm | 1 min. read

ANALYSIS: In his budget speech this week, Singapore's finance minister Heng Swee Keat  announced that Singapore is looking into adjusting its goods and service tax (GST) system to level the playing field between local businesses, which are GST registered, and foreign based businesses that are not.

GST was first introduced in Singapore in 1994, at a rate of 3%. This has been increased gradually over the years, most recently to 7% in 2007.

The tax is levied on goods and services supplied in Singapore, and on the import of goods worth over S$400 (£229). Cheaper goods, goods that are exported, and international services are zero-rated.

Problems have arisen due to the increase in e-commerce and the fact that online suppliers are often not located in the same country as their customers. GST is not charged on the supply of services, such as downloadable music or games, from overseas suppliers to customers in Singapore.

The S$400 limit on charging GST on goods means that many online purchases of low-value goods such as fashion items are also not taxed. This causes 'GST leakage', in that the government does not receive as much tax as it would do if the goods were bought locally, and also affects Singapore businesses who can be undercut by foreign competitors that do not have to pay the same taxes.

The government is likely to study the imposition of GST on imported digitised services, following recommendations laid out by the Organisation for Economic Co-operation and Development (OECD).

For physical goods bought online, the OECD recommends that the value below which goods can be imported without paying GST should be reduced, or removed altogether. The tax would be collected by the delivery service that brings the goods to the customer.

For digital services, countries can set up a registration process that suppliers must use to record the GST due when selling goods to that country, the OECD said. 

Singapore may follow the lead of Australia, which introduced GST on cross border downloads of digital services last year.

The Singapore government may also look into a reverse charge mechanism where the tax is paid by the person receiving the goods, in this case the Singapore buyer, rather than the seller.

In addition, we are likely to see a progressive increase in the rate of GST over the next few years, as was the plan when the tax was introduced in 1994.

There is some concern in business circles about the impact of a change to GST. However, tax rates are just one of the determinants of Singapore’s business potential, and it is unlikely that Singapore will lose its attractiveness to suppliers. Other factors such as Singapore's political stability, strong infrastructure and ease of doing business will counter any impact of increased or more broadly levied GST.

Singapore-based Valerie Wu is a tax expert with Pinsent Masons, the law firm behind