The tricky business of imposing an ecommerce tax in Singapore

Photo credit: Martha Soukup.

Could Singapore start charging Goods and Services Tax (GST) on online services and online purchases that come from abroad? Should it? An article on Channel News Asia late last week suggested that this might well happen, as tax experts feel it would be a boon to Singapore’s tax revenue.

60 percent of ecommerce sales in Singapore last year were cross-border purchases.

As it stands, online services provided by non-Singaporean companies (like online gaming) are not subject to the 7 percent tax imposed on most goods and services in the country. Online purchases from overseas ecommerce companies are not subject to the tax if the value of the purchase is lower than S$400 (US$293).

Experts who talked to Channel News Asia said an online tax is not only inevitable, but should be highly desirable as well, as they think Singapore misses out on significant tax revenue due to the sheer volume of people buying things online from overseas.

According to cross-border ecommerce services provider Borderfree (acquired by software and services provider Pitney Bowes), 60 percent of ecommerce sales in Singapore last year were cross-border purchases.

Given that ecommerce revenue in Singapore amounts to US$3.9 billion according to Statista, it’s not hard to see why tax experts are chomping at the bit for the government to tax more of that.

Photo credit: Ken Teegardin.

Tangled web

But is it a good idea? “This really isn’t a surprise, although it is an unwelcome one,” says Justin Hall, principal at Singapore-based venture capital firm Golden Gate Ventures, in an email to Tech in Asia. Golden Gate has invested in several ecommerce startups in Singapore, including furniture ecommerce startup Hipvan and online groceries retailer Redmart.

“Many countries actually impose a similar tax, the United States included, although it should be noted that this is done on a state, not federal, level.”

One of the most controversial measures in this respect came from the European Union. From January 2015 onwards, the EU imposed its GST equivalent, the Value-Added Tax (VAT), on digital goods and services at the member state where the purchase of that service took place.

If the Singapore government intends to apply tax to both local and foreign retailers, questions on the efficacy, speed, and practicality of that roll-out become important.

Called VATMOSS, or VAT Mini One Stop Shop, the legislation not only led to increased prices for consumers, but also created a real headache for companies selling across the EU: VAT rates differ from country to country plus there are different rates for different types of products and services within each member state. A company having to pay VAT for each sale would have to keep track of all of these different rates and member states to be tax compliant.

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