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GST will be applied on all imported items purchased online beginning in 2023

After a Bill was passed in Parliament on Tuesday, the Items and Services Tax (GST) will be applied on all imported goods beginning in 2023.

GST would be extended to low-value products worth up to S$400 that are imported through air or post beginning January 1, 2023, under the Goods and Service Tax (Amendment) Bill.


Imported products arriving by sea or land, as well as those worth more than S$400 arriving by air or post, are already subject to GST.


GST will also be implemented on non-digital imported business-to-consumer (B2C) services such as live interaction with foreign educational learning providers and telemedicine.


According to Second Minister for Finance Indranee Rajah in her second reading address in Parliament on Tuesday, the amendments will level the playing field for Singapore firms by subjecting offshore suppliers to the same GST treatment as domestic suppliers (Nov 2).


Deputy Prime Minister Heng Swee Keat had previously announced these changes in his Budget statement earlier this year.


Another change is that the GST treatment for media sales will be updated.


Advertising space for hardcopy print and outdoor commercials, advertising airtime for broadcasting via TV and radio, and media space for web advertising via email, Internet, or mobile devices are all examples of such transactions.


From January 1 of the next year, the GST treatment will be determined by the location of the client and the direct recipient of the service, rather than the location of the advertising.


"THE SINGAPORE PEOPLE ARE STILL REELING"


During the discussion, MP Saktiandi Supaat (PAP-Bishan-Toa Payoh) pointed out that levying GST on lower-cost commodities will disproportionately harm low-income people.


"Some Singaporeans purchase things from other countries that they are unable to get locally. "As a result of rising shipping and GST charges, they will now have to deal with much higher costs," he added.


"For low-income families, every dollar saved is crucial. Being pushed into local products that are initially more expensive than their overseas counterparts may be a victory for the local merchant, but it may feel like a loss for the low-income client."


MP Yip Hon Weng (PAP-Yio Chu Kang) had a similar perspective, emphasizing the need to give additional help for lower-income households as the economy changes.


"I'm afraid that levying GST on all inbound foreign items would increase the burden on these residents." Has the government conducted any study or solicited input on how international internet merchants plan to deal with the tax increase? Is it going to be absorbed? “How much of it will be passed on to consumers if not?” he wondered.


Mr Saktiandi further mentioned that the change will coincide with an upcoming hike in local GST rates, which is projected to occur before 2025.


"The pandemic's economic impact on Singaporeans is still being felt. So, even though the policy is required and many nations have previously made similar measures, all of these conceivable reasons that may lead to rising expenditures may be difficult to accept as the usual course of events," said Mr Saktiandi.


Ms Indranee said that the majority of individual consumption, such as food, utilities, transportation, education, and healthcare, will be unaffected by the shift.


"These items and services are often purchased from local rather than international vendors, and hence are unaffected by the application of GST to low-value commodities imported through air or post, as well as B2C imported non-digital services," she explained.


"We have stated that the government would continue to absorb GST on government-funded healthcare and education." Other permanent initiatives, including as the Workfare Income Supplement, Silver Support, and ComCare, already exist to assist lower-income Singaporeans. We have also offered extra help, such as Service and Conservancy Charge refunds and top-ups to Child Development and Edusave accounts, as part of our yearly budget.


"The government remains dedicated to assisting Singaporeans, with a focus on the low-income population."


MP Louis Chua (WP-Sengkang) stated in his speech that he agrees with the need to implement GST on low-value goods and imported non-digital services, but that the target implementation date of 2023, combined with the "sooner rather than later" hike in GST rates, could result in a "double whammy" for consumers.


Mr Chua stated that a GST increase would be a "unnecessary burden" on Singaporeans, and that he could not accept it.


“We must have the guts to make the difficult decisions that are required to maintain a fiscally responsible culture, even if it means reversing a previous decision taken under quite different conditions. It's not too late to turn around, and I strongly encourage the government to reconsider the need for a GST increase," he stated.


Ms Indranee stated that this was not the time to argue whether or not to raise GST on a broad scale, because the Bill was focused on a single issue: low-value commodities.


She did, however, emphasize the need of considering Singapore's revenue and expenditure circumstances.


"With the pandemic in mind, we have five budgets in 2020." We provided help every time the MTF had to impose limits that impacted companies. So you can't just point to one single issue and say, "Please alter this, it's really onerous." "You have to look at the larger picture," she continued, "and you can't have such limited tunnel vision."


"The other message is that this government will always ensure that anyone is in need, who is truly in need, receives assistance." And the only way to achieve that is to have a variety of sustainable revenue streams, as well as to ensure that you have recurring revenue for recurrent spending."


"AN EQUITABLE PLAYING FIELD"


One of the motivations for the adjustments, according to Ms Indranee, was to close a "gap" that disadvantages local firms.


"The imposition of GST on low-value items imported by air or mail, as well as imported B2C non-digital services, is required to provide a fair playing field for our local firms and allow them to compete successfully." "Overseas suppliers of products and services would be treated the same as domestic suppliers in terms of GST," she stated.


"In a rising digital economy, these adjustments will help keep our GST system robust."


Mr Saktiandi said that there has been a "substantial surge" in interest in online buying, and that the Internet's borderless nature means that Singaporeans may easily access international online marketplaces.


“Local firms would now face competition from abroad internet vendors, who are typically more experienced and able to provide their goods and services at cheaper rates due to reduced manufacturing costs and the absence of taxes,” he added.


"Local firms I've spoken with are really excited about the government's decision to apply GST on lower-value overseas imports through air. The company owners feel that lowering the cost gaps between buying things locally and buying them elsewhere would assist to boost customer traffic inward to some extent."


Singapore's small retail entrepreneurs, according to MP Sharael Taha (PAP-Pasir Ris-Punggol), are "struggling" in the face of the growth in internet purchasing.


He said that during a recent meeting with the Merchants Association in Pasir Ris, they revealed that commerce has dropped by up to 40% to 50% since the outbreak.


"Some clients are now perusing the physical things in the shop, trying them on, and questioning about them," the merchants said, "but when it comes to payment, some customers whip out their smartphones and ask the shop owners for a lesser price than what is offered online." Our tiny retail merchants' bread and butter used to be the selling of these things, but that is no longer the case," he stated.


"With customers buying less regularly in physical stores and offshore suppliers benefiting unfairly from not having to pay GST, our local companies are trying to make ends meet." As a result, our small retail merchants hope for a fair playing field, with the imposition of GST on low-value imported items being one of the facilitators."


THE COMPLIANCE CONCERN


MPs also voiced concerns about how the additional restrictions will be implemented.


Policies must be "pragmatic and enforceable," according to Mr Saktiandi.


"How will this policy be applied, given the large number of independent overseas merchants that provide direct shipping to Singapore?" “Would GST be paid to the seller or to the customer after the purchase reaches local customs?” he wondered.


Mr Yip also mentioned that there may be a "disproportionately" big number of low-value transactions compared to high-value transactions, and that the government may need disproportionately more resources to ensure that people follow the new GST rules.


“How will the government ensure that there are sufficient resources to effectively implement the new policies?” he inquired.


"Amazon, Taobao, and Lazada are examples of international corporations having a significant online retail presence in Singapore." Smaller third-party businesses are allowed to sell on these platforms. Have the key stakeholders enlisted the help of these firms to handle the issue of compliance in a cooperative manner? What if the overseas retailer refuses to pay the GST? How will the government deal with foreign corporations who don't follow our GST rules?”


Ms Indranee stated in her response that the new GST measures will be implemented by “expanding the scope” of Singapore's current overseas vendor registration (OVR) and reverse charge (RC) regimes.


These policies aren't new, and they've been in place since the beginning of last year, according to her.


After consumers check out their purchases, GST-registered foreign merchants will charge and collect GST on low-value products at the point of purchase when the order is verified, according to Ms Indranee.


"This is comparable to how GST has been collected on imported B2C digital services from January 1, 2020," she explained.


"Where the overseas vendor has charged and collected GST on low-value items, the overseas vendor will submit the necessary GST collected information in the commercial document that is sent through the logistics chain." When this information is provided to Singapore Customs, no import GST will be due at the border."


Ms Indranee pointed out that compliance with the new GST regime is already in place for international vendors that provide B2C digital services to local consumers.


"IRAS has gained expertise in administering and implementing the regime as a result of this." Our OVR standards are in line with those in place in other jurisdictions. This makes it simple for international merchants to comply... "Many of these international sellers are familiar with similar GST or VAT duties in other countries," she explained.


"Our experience with OVR from January 1, 2020, as well as the experience of other jurisdictions with OVR, shows that multinational corporations comply with the GST or VAT responsibilities of the countries to which they make supply."


She noted that IRAS will employ "a variety of information sources" to identify and engage foreign merchants who should be GST-registered, as well as to check their GST reporting following registration.


"The existing penalty and enforcement framework under the GST Act will apply in the case of noncompliance."


By Flexi Team


*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.

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