There has been much talk surrounding the impending GST hike following the recent Budget 2018 announcement. In his speech, Finance Minister Heng Swee Keat revealed the government’s plans to raise GST by two percentage points, from 7% to 9% between 2021 to 2025, with the exact timing dependent on the economy’s performance, expenditure growth, and sustainability of existing taxes.
While some may heave a sigh of relief that the cost increase will not take place for another three years, reactions have been nothing short of lively. In Parliament alone, the GST hike has been a hotly debated topic, with concerns raised over businesses using the increase as an excuse for profiteering, to its impact on small businesses, the low income and even retirees. Elsewhere, there were calls for the increase to be pushed back and staggered by one percentage point at each stage.
While awaiting further updates on the hike, expected to take place ‘earlier rather than later’ during the announced period, let’s take a closer look at one of the short-term measures on GST – the implementation of a ‘Netflix’ tax.
Introduction of a ‘Netflix’ tax
Back in 2015, Singapore experienced a surge in e-commerce, with the market valued at US$1 billion in the same year, according to a report by Temasek and Google. The same report projected that e-commerce in Singapore would be worth US$5.4 billion by 2025, making up 6.7% of total retail sales.
Also, several jurisdictions including Australia, the European Union, Japan and Korea had already introduced, or were considering the introduction of measures to collect value-added tax owing to substantial increases in e-commerce. It was only a matter of time before Singapore followed suit. Moreover, the introduction of such a tax would provide a new and sustainable government revenue pipeline, given the upward trend of e-commerce.
What made the introduction of such a tax likely was the existing gap between those who paid GST on taxable supplies in-country, and those who made purchases outside the country without paying tax. The introduction of an e-commerce tax would help bridge that gap and level the playing field. Attendees at our Budget 2016 seminar would recall that we predicted an introduction of an ‘e-commerce’ tax on imported goods and services.
True enough, the government confirmed the implementation of the ‘Netflix’ tax – or GST on imported B2B and B2C services – two years later, as announced in Budget 2018. Starting from 1 January 2020, certain digital consumers and businesses who buy services from suppliers overseas will need to pay GST. Foreign suppliers with a global turnover of more than S$1 million, and which sell digital services to Singapore in excess of S$100,000, will also be required to register for GST.
‘Netflix’ tax: B2B vs B2C
While B2C imported services will be taxed under an overseas vendor registration model, B2B imported services will be taxed on a reverse charge basis. It is interesting to note that although the reverse charge mechanism has been in place since 1 April 1994, it was suspended as there were no applicable “prescribed services”. With the introduction of the ‘Netflix’ tax, that has changed. Under the reverse charge mechanism, the business would pay GST on imported services and put in a claim for the amount paid.
Will the reverse charge apply to you?
For GST-registered persons:
For non-GST registered persons:
In determining whether you are subject to reverse charge, it would be prudent to review your input tax claims to ensure they are filed correctly. Input tax claims must meet eligibility criteria (e.g. incurred in making certain types of supplies) and must not be specifically excluded from claim (e.g. motor car expenses, family benefits, etc.). It is also important to ensure that the supporting tax invoices are valid, as penalties may be imposed for wrongful claims.
For more information on how the ‘Netflix’ tax and reverse charge apply to you, contact our tax professionals at +65 6336 2828.
 E-Conomy SEA: Unlocking the $200 billion digital opportunity in Southeast Asia (2016), http://www.slideshare.net/economySEA/economy-sea-by-google-and-temasek