Singaporeans can expect to pay GST for digital services and imported services from Jan 1. 2020, including Netflix, Spotify, Office 365 and Adobe Creative Suite.

This was after a Goods and Services Tax (Amendment) Bill was passed in Parliament on Nov. 19, 2018.

What are imported services?

Imported services are pretty much anything businesses and consumers can pay for online, and services done outside Singapore.

Consumers can now expect to pay GST for digital services that they use.

These services include marketing, accounting, IT and management services used by businesses, and video and music streaming services such as Netflix and Spotify, app purchases, software subscriptions and so on.

For some of these companies, they are not yet registered for GST in Singapore for the provision of digital services to Singapore consumers.

So chances are, you’re not being charged GST for your digital services imported from overseas.

How much extra will I be paying?

As per the Goods and Services Tax Act, the current rate of GST would be 7 per cent.

However, it was announced during Budget that GST would be raised to 9 per cent some time in 2021 and 2025.

GST treatment for online purchases of goods remain unchanged

You can't escape the digital tax on your Netflix or Spotify subscriptions.

However, you would not need to pay GST for items bought online that cost S$400 or below, which are shipped via air or post.

The Ministry of Finance has said there are ongoing international discussions about how GST can apply to these types of lower-value imports.

Criteria for businesses to be registered for GST

Such business-to-consumer services based overseas will have to register via an overseas vendor registration regime imposed on them.

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:

1. Having a global annual turnover of S$1 million or more
2. 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, 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 imported services would be accounted for by the local importing company.

This would not affect a large number of businesses, however, as they can claim a full refund of the GST they incur on their purchases. Such businesses would not need to apply the reverse charge on their imported services.

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.

Digital divide?

Ong Teng Koon, an MP for the Marsiling-Yew Tee GRC voiced out in Parliament in 2018 that this additional tax may impact those from lower-income groups, who are disadvantaged because they lack exposure to the digital world.

The imposition of GST could price children from lower income families out of digital experiences, which are critical to thrive in our current world.

In response, Minister for National Development Lawrence Wong said that there is a permanent GST voucher scheme providing assistance to citizens in order to offset GST expenses for many Singaporeans.

Wong also said that the GST voucher scheme is reviewed regularly to ensure that the lower income receive adequate assistance.

You can read more about the GST on online services here:

Editor's note: We have edited the article to correct inaccuracies, as well as to provide greater clarity on the changes.

Top image adapted via Netflix and Spotify