Singapore To Introduce GST On Imported Digital Services

Singapore will implement a new GST (Goods and Services Tax) on imported services, including video and music streaming services, purchased from overseas suppliers that do not have local establishments.

The move would ensure the country's tax system "remains fair and resilient in a digital economy", said Finance Minister Heng Swee Keat, during his speech detailing the national budget for 2018.

Slated to take effect from January 2020, the new GST would apply to services such as consultancy and marketing as well as downloaded apps and music purchased from overseas that, today, were not subject to the tax.

This tax, however, would not apply to e-commerce transactions, which the Singapore government would continue to review before determining how it would proceed on this, Heng said.

This came as somewhat of a surprise as government officials recently had pointed to online shopping as an area that needed to be assessed for its possible inclusion in the local tax regime. Singapore online shoppers currently were not taxed for purchases valued at below S$400.

The new GST would be applied to business-to-business (B2B) and business-to-consumer services, such as marketing, accounting, and IT services as well as apps, online software subscription fees, and video and music streaming services. Suppliers of such services that already had establishments in Singapore would not be subjected to the new tax.

The Inland Revenue Authority of Singapore (IRAS) said the B2B imported services would be taxed based on a reverse-charge mechanism, which required the local business clients to account for GST to IRAS on the services it imported.

B2C imported services would be taxed through "Overseas Vendor Registration", which would require overseas suppliers and operators of online marketplaces that processed "significant supplies of digital services to local consumers" to register with IRAS for GST.

The Singapore tax authority added that it would reveal more details on the new tax by the end of February 2018.

Further help for businesses to innovate

In his speech, Heng also boosted tax deductions aimed at helping local businesses develop their own products and services. Specifically, tax deduction for intellectual property (IP) registration fees would be increased from 100 percent to 200 percent, capped at S$100,000 per year.

Tax deduction for qualifying expenses as a result of research and development (R&D) work conducted in Singapore also would be increased from 150 percent to 250 percent, he said.

To further help businesses identify partners with which to co-develop products and services, the minister unveiled plans to pilot a virtual crowd-sourcing platform, on which companies could list challenges that could be resolved by digital applications. They then would be matched with ICT vendors and research institutions to jointly develop such applications, he added.

Pointing to last year's focus on helping local businesses with their digital transformation, Heng said the government was assessing, alongside the Singapore Business Federation and other industry partners, the development of a national e-invoicing framework. The goal here was to help businesses increase productivity and improve cash flow, he said.

"As digital technologies transform our economy, all firms must develop digital capabilities," he said, noting that more that more than 650 small and midsize businesses had benefitted from the SMEs Go Digital initiative that was launched last year.