A Goods and Services Tax (Amendment) Bill was passed in Parliament on Nov. 19.
Singaporeans can expect to pay GST for overseas services in 2020, including that of digital services such as Netflix and Spotify.
This means that business-to-consumer services will have to register via an overseas vendor registration regime imposed on them.
Criteria for businesses to be taxed
Other companies providing video and music streaming services, mobile applications and software may also be affected.
According to the second reading speech on the Goods and Services Tax (Amendment) Bill by Second Minister for Finance Lawrence Wong, such companies will have to register if they meet the two-tier criteria of:
- Having a global annual turnover of S$1 million or more
- Making sales of digital services of at least S$100,000 to Singapore consumers.
The tax is expected to bring in an additional S$90 million of tax revenue every year.
This comes as part of new rules to protect local retailers, by ensuring "both imported and local services are treated on a level playing field and accorded the same GST treatment."
Reverse Charge mechanism
Between businesses, a "Reverse Charge mechanism" would be implemented instead.
Instead of having the business or company based overseas accounting for the GST, the GST for goods and services would be accounted for by the local importing company.
This would not affect a large number of businesses, however, as businesses which can claim a full refund of the GST they incur on their purchases, including imported services would not have this mechanism applied to them.
It is slated to "affect mainly financial institutions and residential property developers" -- those who were unable to have a full GST refund in the first place.
How much more would I have to pay for my Netflix?
As per the Goods and Services Tax Act, the rate of GST would be 7 percent.
It was previously announced during Budget that GST would be raised to 9 percent some time 2021 and 2025.
Ong Teng Koon, an MP for the Marsiling-Yew Tee GRC voiced out in Parliament that this additional tax may impact those from lower-income groups.
Lower-income groups are going to be disadvantaged because they lack exposure to the digital world. Some digital services may also act as more affordable substitutes for physical services, for example, online learning and education and even online entertainment. The imposition of GST on such a imported digital services could reduce their consumption. It could price children from lower income families out of digital experiences, and such experiences are critical to survive and thrive in the world of industry 4.0.
In response, Wong said the following:
Mr Ong shared his concern on the digital divide. And that is indeed something all of us ought to be concerned about. There are several ways we are dealing with this, first we have in place a permanent GST voucher scheme, that provides annual assistance to citizens, this offsets GST expenses for many Singaporeans, especially retiree and lower income households.
We review the GST voucher scheme regularly, to ensure that there is adequate assistance for the lower income. Second, as Singapore becomes more connected, the government will also do more to ensure digital inclusion and accessibility...and of course, Singaporeans can use their SkillsFuture credit to offset course fees including for digital courses offered by online platforms.
More about the GST on online services:
Top image adapted via Netflix and Spotify
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