Imposition of GST on low value imported goods

Written by Richard Mackender, Deloitte Singapore and Southeast Asia’s Tax Partner and Indirect Tax leader and Danny Koh, Tax Partner at Deloitte Singapore. The below are their personal views and may not represent the views of Deloitte.

As published in The Business Times on 23 January 2020.

In the Budget 2018 statement, Minister for Finance Heng Swee Keat announced that Singapore would implement an Overseas Vendor Registration (OVR) regime effective 1 January 2020, which is intended to tax the import of digital services into Singapore supplied to non-GST registered consumers (i.e. B2C), commonly referred to as the “Netflix tax”.

In the same vein, Mr Heng stated that Singapore was not yet ready to address the further imposition of GST on low value imported goods. Instead the tax authority would further consult with the industry and review the developments in other countries.

The standard rule covers goods (e.g. new or used articles, online purchases, gifts) imported via post or courier services to be subjected to payment of GST and/or duty at the point of importation. However, GST relief is available on goods that are imported by post or air, excluding intoxicating liquors and tobacco, as long as the total CIF (Cost + Insurance + Freight) value does not exceed S$400. That said, the OVR regime excludes GST payment on imported low value non-dutiable goods into Singapore not exceeding a CIF value of S$400.

In the intervening months since the release of Budget 2018, Australia and New Zealand have successfully put in place the collection of GST on low value imported goods, effective 1 July 2018 and 1 October 2019 respectively. Non-resident sellers of low value imported goods to non-GST registered consumers in Australia and New Zealand are required to be registered for GST in those countries where the value of the sales exceeds the GST registration thresholds applicable to domestic sellers in each of those countries. Once registered, the sellers are required to charge GST on the sales of these goods to the customers and to remit the GST to the relevant tax authority via a periodic GST return submitted.

Similar rules

The rules adopted by Australia and New Zealand are in fact, quite similar to the rules Singapore has adopted under its new OVR regime. Singapore requires overseas vendors with a global annual revenue of more than S$1 million to be registered for GST if they sell imported B2C digital services to non-GST registered consumers of an annual value more than S$100,000. Once they are registered for GST in Singapore, they would be required to charge and remit the GST to the Inland Revenue Authority of Singapore (IRAS) via the filing of quarterly GST returns.
The OVR regime kicked in on 1 January 2020, with more than 100 overseas digital service providers registered and expected to bring in an additional annual GST revenue of S$80 million to the government’s fund.

The expected additional GST revenue of S$80 million is however only circa 0.73 % of our total GST collection of S$11.1 billion for the fiscal year 2018/19. Assuming an equivalent amount of S$80 million will be collected as additional GST revenue with the imposition of GST on low value imported goods at the current standard GST rate of 7%, even if the GST rate is increased to 9% (as announced in the Budget 2018 speech), the additional GST revenue of circa S$103 million would be only circa 0.94% of our total GST collection of S$11.1 billion for the fiscal year 2018/19.

Therefore, generating additional tax revenue may not be the main driver for the imposition of GST on low value imported goods. The government has always noted that the main reason for the implementation of the OVR regime is to level the playing field between overseas vendors of digital services and domestic GST-registered vendors of digital services. Therefore, we predict it is a matter of time that similar measures will be imposed on low value imported goods.

Singapore’s brick and mortar retailers are already facing strong headwinds from increasing rental and labour costs. The imposition of GST on low value imported goods cushions these retailers from being further disadvantaged by having to charge GST on domestic supplies of goods whilst their overseas competitors benefit from GST-free sales.

Key factors

It would not be a surprise that Singapore could adopt similar tax rules to those in Australia and New Zealand to help close the gap for the taxation of low value imported goods in the near future. The tax authority will need to consider these key factors such as identifying appropriate sellers, ensuring they are compliant and feasibility in tracking the movement of the goods to ensure that the tax is paid on each import. Making reference to the Australia and New Zealand models, overseas suppliers are treated more or less the same as a domestic GST registrant. That is, each seller must register and therefore has a GST registration number and resulting GST filing obligation. Hence, a failure to report output tax can be detected and penalized when a return is not filed or an incorrect return is filed. Movements of goods are reported using a specific import declaration form submitted to the customs authority. Without the form, the goods cannot enter the country. A similar model could be adopted in Singapore as well.

Given that the OVR regime has just been implemented in Singapore and the upcoming Budget 2020 is expected to focus on other areas such as helping Singapore businesses increase productivity, retraining their workers, helping affected households cope with raising costs, improving safety nets that protect the poor, elderly and vulnerable, etc, it may be too soon to announce the implementation of imposition of GST on low value imported goods.

Singapore consumers can continue to shop online for low value imported GST-free goods for a little while longer, bearing in mind low value imports is an anomaly that other countries have addressed, and Singapore is likely to follow suit too.

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