Debated in Parliament on 2 Nov 2021.
Order for Second Reading read.
Mdm Deputy Speaker, I beg to move, "That the Bill be now read a Second time".
The Goods and Services Tax (Amendment) Bill 2021 covers four sets of amendments. Two give effect to measures that were announced in the 2021 Budget Statement. The other two arise from our periodic review of the GST regime to clarify GST treatment and improve GST administration.
MOF sought views from the public on the draft Bill earlier this year. The public consultation was conducted from 6 to 27 July 2021. MOF has published on 1 October 2021 our responses to the key feedback received. We have evaluated the feedback received and incorporated them where relevant and feasible to do so. We thank the contributors for their inputs which have allowed us to refine the amendments.
Let me start with the first two sets of amendments, which relate to the changes announced in the 2021 Budget Statement on 16 February 2021.
We impose GST on all goods imported via land or sea, regardless of value. We also impose GST on goods imported by air or post with a value above $400. We currently do not have GST on goods imported by air or post with a value of $400 and below. This is a gap which puts local businesses at a disadvantage.
To close this gap, the first set of amendments introduces GST for goods that are valued up to the current GST import relief threshold of $400, or "low-value goods", that are imported via air or post from 1 January 2023 onwards.
The first set of amendments also introduces GST for business-to-consumer, or B2C, imported non-digital services, such as live interaction with overseas providers of educational learning and telemedicine.
The extension of GST to such imported low-value goods and B2C imported non-digital services under these amendments will complement the GST that we already levy on business-to-business, or B2B, imported services, and on B2C imported digital services from 1 January 2020.
Other jurisdictions have extended their GST or Value Added Tax, or VAT, similar to our proposed amendments. Jurisdictions that have extended their GST or VAT regimes to cover imported low-value goods include Australia, the European Union, New Zealand, Norway, Switzerland and the United Kingdom. Similarly, jurisdictions which already tax B2C imported non-digital services include Australia and New Zealand.
The introduction of GST for low-value goods imported via air or post and for imported B2C non-digital services is necessary to ensure a level playing field for our local businesses and allow them to compete effectively. Overseas suppliers of goods and services will be subject to the same GST treatment as local suppliers. These amendments will also keep our GST system resilient in a growing digital economy.
The legislative changes for the first set of amendments can be found in clauses 2 to 4, 6 to 15 and 17 to 26 of the Bill.
Next, I will deal with the update on the GST treatment for a supply of media sales.
The second set of amendments updates the GST treatment for a supply of media sales. Media sales refer to the sale of advertising space for hardcopy print and outdoor advertisements, advertising airtime for broadcasting via TV and radio, and web advertising via email, Internet or mobile devices.
Currently, the basis for determining whether a supply of media sales is zero-rated or standard-rated depends on the place of circulation of the advertisement. If the media sales are circulated in Singapore, GST applies. If they are circulated abroad, then the supply of media sales is zero-rated.
However, this is no longer reflective of the state of media sales today. Online advertising has grown and is expected to account for an increasing share of advertising spending in future. Developments in digital technologies have changed the way that media sales are supplied and made it more difficult for suppliers of digital media sales to determine the place of circulation of the advertisement.
We, therefore, need to update and revise the GST treatment of media sales. Thus, with effect from 1 January 2022, the GST treatment for the supply of media sales will instead be based on where the person who contracts for the service, for example, a local or overseas headquarters or HQ, and the person who directly benefits from the service, for example, a subsidiary in Singapore, belong. For example, if the contractual customer of the media sales service belongs in Singapore, GST will be charged at the standard rate.
This amendment is provided for in clause 11 of the Bill.
Beyond these two sets of amendments, MOF regularly reviews the GST regime to clarify GST treatment and to improve GST administration. Let me now touch on the remaining two amendments in the Bill arising from this periodic review.
The first amendment arising from this periodic review updates the transitional rules for changes in GST treatment.
For supplies spanning the date of a change in GST treatment, the transitional rules under the GST Act and Regulations help taxpayers determine whether the old or new GST treatment applies. These rules were last amended in 2011.
Since then, there have been changes to our GST system. For instance, we introduced GST on imported B2B services and imported B2C digital services from 1 January 2020. We have reviewed the transitional rules and updated them in consultation with the industry. The proposed updated transitional rules will help prevent revenue risks, particularly for related-party transactions, provide tax certainty and ease the compliance burden of taxpayers whenever there is a change in GST treatment.
These proposed updated transitional rules will apply to changes, such as the proposed change of GST treatment for a supply of media sales, from 1 January 2022.
This amendment updates the transitional rules, such as to cover imported services, clarifies the application of elections under the transitional rules and makes various administrative changes that are necessary for a smooth transition of a new GST treatment. Clause 16 of the Bill provides for these amendments.
Finally, the second amendment arising from the periodic review of our GST system seeks to make miscellaneous changes to the Overseas Vendor Registration, or OVR, and Reverse Charge or RC regimes. These are regimes for enforcing GST on low-value goods imported via air or post and imported services. The miscellaneous changes seek to prevent revenue risks, provide tax certainty and ease the compliance burden.
These miscellaneous changes are found in clauses 4 to 6 and 25 of the Bill. Mdm Deputy Speaker, I beg to move.
Question proposed.
Mr Saktiandi Supaat.
The COVID-19 pandemic has accelerated the process of digitalisation and forced many brick-and-mortar stores to take their businesses online. The learning curve has been a steep one and some are disheartened when they discover that after getting their store online, the challenges are far from over.
In the past two years, we had observed a significant increase in interest in online shopping. The borderless nature of the Internet would mean that Singaporeans also have easy access to foreign online marketplaces. Local businesses would now find themselves competing with online sellers from overseas, who are often more experienced and able to offer their goods and services at lower prices due to lower production costs and lack of taxes.
The Government’s move to apply GST to lower-value overseas imports via air is highly anticipated and welcomed by the local businesses that I have spoken with. The business owners believe reducing the cost differences between buying products locally and overseas would, to some extent, help to drive the consumer traffic inwards. But to achieve its intended purpose, the policies must be pragmatic and enforceable. With the sheer number of independent foreign merchants that offer direct shipping to Singapore, how will this policy be implemented?
Would GST be paid to the merchant or would consumers make the payment when their purchase reaches local customs? With this additional step of GST collection on an increased number of parcels, will this slow down the delivery process significantly? How could a possible decrease in delivery service standards be mitigated, while ensuring prompt collection of taxes?
Mdm Deputy Speaker, for digital services, the absence of customs intervention could mean a higher possibility of tax evasion. For example, if someone purchases a web design service from an independent designer overseas, is there any way for the authorities to track this transaction, besides self-declaration from the consumers? Would the Government work with international payment platforms, such as PayPal and Stripe, to better monitor the outflow of online payments from Singapore to overseas?
Besides administrative issues, the fact that this tax on lower-cost goods would affect lower-income households is another cause for concern. Some Singaporeans buy products from overseas that they cannot find locally. They will now have to contend with significantly higher costs as a result of increasing shipping costs and GST costs and not to mention the supply chain disruptions that we are facing now. For the lower-income households, every cent in savings counts. Being driven towards local options that are initially more expensive than its foreign counterpart may be a win for the local retailer, but, for the low-income consumer, it would feel like a loss.
A resident of mine recently learnt to shop online after receiving training from the Seniors Go Digital Programme. She has frequent backaches and was delighted to buy a brand of ointment from Indonesia, which is not available in any of the local supermarkets. She says it is much cheaper than her usual choice of ointment and more effective. With the new policy, she lamented that she may give up using it if it becomes too costly. So, I did tell her that she could try to suggest to some of our local supermarkets to bring in the product. As I understand, our local supermarkets and retailers have been heeding the Government’s call to diversify supplies. So, I would hope that our residents do not have to feel deprived of their favourite overseas products because it has become significantly costlier to purchase overseas.
Nonetheless, all this is happening in tandem with the scenario of a potential increase in local GST rates, which may take place by 2025. Singaporeans are still reeling from the economic impact of the pandemic. So, all these possible factors that may contribute to increased expenses may be very difficult to be taken as the normal scheme of things, even if the policy is necessary, and many countries have already implemented similar moves. A young resident tells me that he is feeling disheartened because he is still searching for a stable job after graduating, but costs of living are going up faster than he can find one.
The widespread popularity of e-commerce and foreign marketplaces in Singapore would mean that increasing GST not only impacts businesses, it also indirectly impacts Singaporeans’ costs of living. So, it is important that we address it as such. With that said, I understand that some major multinational online marketplaces, in fact, already incorporate GST into their goods and services and pay it directly to the Government. So, the number of consumers affected by the new policy may be less than expected.
Mdm Deputy Speaker, this policy would, in essence, help to reduce loss of Government taxes and improve fairness for local businesses, but some clarity on the actual enforcement is necessary. Moreover, the Government should address concerns with regard to the impact of the policy on the cost of living in Singapore. Mdm Deputy Speaker, I support the Bill.
Mr Louis Chua.
Mdm Deputy Speaker, it felt like yesterday when I last spoke on the GST (Amendment) Bill which was introduced in Parliament in November 2020. Back then, I shared my concerns about the loss of public revenues through GST leakages and had also asked about the status of introducing GST on imported goods, a point which was first raised in Budget 2018. I shared then that the OECD had, in March 2019, endorsed new rules and frameworks for the collection of taxes on the online sale of goods.
Meanwhile, COVID-19 has resulted in dual impacts on the retail sector in Singapore: firstly, an acceleration in the already rapid growth of the e-commerce market; and, secondly, the continued struggle of brick-and-mortar retailers amid an uneven playing field.
Fast forward to this year, these points continue to be relevant, with online sales now representing 16.4% of total retail sales, excluding motor vehicles, in August this year and with vacancy rates of retail space remaining elevated at 8% despite declining retail rents since 2015, given the challenges faced by the retail industry and made worse by multiple waves of COVID-19-related restrictions.
From the perspective of supporting our local SME retailers and to address a growing source of tax leakage due to overseas online retailers and to correct a key imbalance faced by tax-paying retailers in Singapore, I would like to state upfront that I am supportive of this Bill and the ensuing changes to ensure a level playing field for our local businesses to compete effectively.
A year ago, Finance Minister Lawrence Wong shared that he was very happy that I had brought up this point and supported it, because the MOF will certainly look for ways to raise more revenues and I believe the Minister will be equally happy with my discussion today. That being said, I do have a number of clarifications and broader issues to raise.
The first is that, since 1 January last year, GST is now payable on digital services provided by the GST-registered overseas service providers. In December 2019, IRAS shared that more than 100 overseas digital service providers have registered for GST under Singapore's Overseas Vendor Registration (OVR) regime and will be charging GST on their sales of digital services to Singapore consumers.
In November 2018, it was shared in this House that the Government expects additional revenue of about $90 million per year from this so-called "Netflix tax". Incidentally, Netflix has grown its subscriber base globally by about 1.5 times from 2018 to 2020, adding 37 million subscribers globally in 2020 alone. In Singapore, Disney+ was also launched in February this year, with many other over-the-top (OTT) services, Software as a Service (SaaS) and other forms of digital services witnessing prolific growth, due to the change in consumption patterns brought about by COVID-19.
I would like to ask the Minister: what was the assessed contributions from the tax on overseas digital services in the last financial year and how does it compare with initial estimates? More broadly, what has been MOF's initial assessment of the level of industry compliance, effectiveness of the administration of this tax and the number of cases of non-compliance by overseas vendors detected by IRAS so far?
Second, I understand that from 1 January 2023, GST will now apply to goods imported by air or post with a value of up to S$400, as well as imported non-digital services. In both of these cases, implementation is by way of extending the Overseas Vendor Registration (OVR) regime, similar to how GST was being extended to digital services. Under certain conditions, a local or overseas operator of electronic marketplaces may also be regarded as the supplier of such low-value goods or imported services.
With the likes of Shopee and Lazada being the e-commerce marketplaces with the largest estimated market share here in Singapore and with these companies themselves being headquartered in Singapore, the focus on these popular electronic marketplaces and digital platforms does provide for an effective way to ensure tax compliance and proper GST collection. However, now that we are venturing into the realm of low-value goods, a significantly larger plethora of overseas businesses are now supposed to be GST-registered.
But the reality is that not all of them may be aware of this requirement and, even if they do, could simply decide not to go through this hassle to collect GST on the Singapore Government's behalf. A quick search on the IRAS GST Registered Business Search throws up four records for Shopee, five records for Lazada, 20 for Amazon but none for Taobao, by far the most dominant marketplace in China, for example. There could also be many more direct overseas vendors that may or may not be registered as well.
How then can IRAS ensure that there is a robust enforcement framework in place, to ensure that all those who fall within the scope of the OVR regime do so? In the absence of financial records of companies incorporated overseas, much less the amount of revenues they derive from Singapore specifically, how does IRAS make the determination as to which companies it seeks to audit or investigate? And whether the overseas tax authorities will be able to provide as comprehensive an information set that IRAS seeks to retrieve?
The third point is in relation to one of tax efficiency and IRAS has been an efficient tax authority, a consistently low cost of tax collection at less than one cent per dollar of tax collected over the past years. I recognise that this new Bill is also about protecting Singapore's revenue base, not just merely about the additional GST receipts from the imposition of GST on these categories of goods and services.
But how much does the Government expect to collect in GST receipts from each of the low-value goods and imported non-digital services? And what is the cost of tax collection in this regard and the expected level of resources and costs to ensure a comprehensive compliance and enforcement framework?
The fourth point is more of an adjacent one and while Singaporeans may not be able to travel overseas as freely as we would like to right now, we do yearn for the skies one day. As and when we do travel overseas, it is to be expected that one might be doing some shopping and bring home some gifts and souvenirs. Today, travellers are granted GST import relief on new goods that are purchased overseas and brought into Singapore for their personal use, with the relief amount set at $500 with 48 hours spent away from Singapore. Can I ask the Minister if this GST relief is expected to stay intact even when GST on low-value goods is in place from 2023?
Before I end, Mdm Deputy Speaker, I would like to speak about a number of broader but pertinent issues relating to GST.
The first is on the spectre of a looming GST hike from 7% to 9% amid current macroeconomic uncertainties. The Workers' Party has been voicing our concerns on the GST hike since it was announced in 2018 and I take comfort that Member Mr Yip Hon Weng also shared his concern on the impending GST hike, where he pointed out in his speech on the Income Tax (Amendment) Bill last month, that this was originally announced before the pandemic. To which, Minister Lawrence Wong responded that, "The Government has announced that the GST rate increase will take place sometime during 2022 to 2025. This remains unchanged and we will continue to consider all factors, including our fiscal needs as well as the prevailing economic conditions in deciding on the timing of the GST rate increase."
While I agree with the need to roll out GST on low-value goods and imported non-digital services, the target implementation from 1 January 2023, coupled with the "sooner rather than later" hike in GST rates, could mean a double whammy for consumers.
Yet, Mdm Deputy Speaker, this impending GST hike is weighing on not just consumer confidence but also on businesses, especially the retailers hard-hit by COVID-19-related restrictions. The Singapore Tenants United for Fairness group, for example, in commenting on the latest month-long extension of COVID-19 restrictions, shared that the frontline business community is in deep despair and disrepair, and I quote, "To make matters worse, over the next 12 months, frontline businesses will be further hit by a likely increase of GST to 9%".
The other factor that is critical to consider is that of inflation. High inflation would simply mean lower real incomes and, at the moment, the debate globally, which has yet to be settled, is whether or not the current inflationary pressures in the market are seen to be transitory or permanent. What I do know, however, is that MAS is concerned enough about inflation to surprise the market with a tightening of monetary policy in October, that is, last month, given that external and domestic cost pressures are accumulating.
For Singaporeans already grappling with inflation and higher household expenditures, that additional two percentage points may be too much to bear. Yes, there will be the GST Assurance Package that delays and does not deny the impact of higher GST rates. Yes, I acknowledge that there will be an enhancement to the permanent GST Voucher scheme, which, at the moment, only applies to those earning less than $2,300 a month, amongst other conditions. These may be progressive elements involved but does the raising of GST make our tax system as a whole more progressive or more regressive? I believe the answer is clear. Do we really want higher GST to be the straw that breaks the camel's back?
As I shared in my speech last year, we need to explore other forms of revenue sources before looking to an eventual GST hike to raise tax revenues. The Significant Infrastructure Government Loan (SINGA) Bill was passed earlier this year. We are now casting our GST net further overseas. We are raising carbon tax rates. We are considering wealth taxes. We are in the midst of the OECD global tax reforms which could, as Finance Minister Lawrence Wong pointed out, give Singapore some additional revenue. And as I have shared during the Budget debates earlier this year, not all Government revenues are included in the official Budget.
Mdm Deputy Speaker, while I support this GST amendment Bill, I cannot support a GST hike which will be an unnecessary burden on our fellow Singaporeans, especially at this point in time when inflation is a serious concern and a full recovery of the employment market remains uncertain.
We must have the courage to make the difficult decisions that are necessary to uphold a culture of fiscal responsibility, even if it means walking back on a prior decision made under very different circumstances. It is not too late to change course and I strongly urge the Government to reconsider the necessity of a GST hike.
Thank you, Mdm Deputy Speaker. Online sales in Singapore will hit an estimated US$8 billion this year. In a recent report by Bain & Company, e-commerce sales in Singapore are expected to grow to US$10 billion by the end of 2026. In the past 20 months, due to the confluence of factors, such as travel restrictions due to the pandemic, the growth of end mile-delivery platforms, lower-priced alternatives and our digitally well-connected population, online shopping has become the norm for us Singaporeans.
Since the onset of COVID-19, people have changed the way they shop and these changes are unlikely to reverse. A recent study in Singapore last year by Visa also found that three in four consumers in Singapore are shopping online more frequently because of the pandemic and one-third of Singaporeans also made an online purchase for the first time. The same survey also found that more than half of the respondents shopped less frequently in physical stores. This is likely due to the fact that we can purchase almost anything online now, from small, low-value items like cutleries, pots and pans, tools, mattresses and household items to expensive luxury items.
While most of us are enjoying the convenience of online shopping, a portion of our fellow Singaporeans, our small retail merchants, are struggling. In my recent discussion with our Merchants Association in Pasir Ris, our merchants, especially those that sell low-value household items, such as hardware, tools, curtains, small pieces of furniture and non-perishable products, shared that since the pandemic, their business has gone down by up to 40% to 50%.
Ms Ann Tan, a business owner at one of our neighborhood shops in Pasir Ris selling furniture, shared that her business has dropped by 50% and showed examples online where the overseas retailers were charging the same price for the exact same cupboards and shelves without GST. Bike shops also shared examples where small bicycles parts like grips, handlebars and gloves were all available online from overseas but not subjected to GST. The merchants also shared that some customers now are browsing the physical item in the shop, trying out the items, enquiring about the items but when it came to payment, some customers whip out their handphones and ask the shop owners for a lower price compared to what is available online.
The sale of these items used to be the bread-and-butter of our small retail merchants, but it is no longer. With people shopping less frequently in physical stores and the unfair advantage that overseas suppliers have by not paying GST, our neighbourhood businesses are struggling to make ends meet. Hence, our small retail merchants are hoping for a level playing field and the introduction of GST on low-value goods from overseas will be one of the enablers for that.
In addition to the introduction of GST on low-value goods from overseas, these small enterprises will need more assistance to remain competitive with the overseas online retailers. I am glad that we have programmes like IMDA's SMEs Go Digital which has a three-step checklist to go digital and the retail industry digital plan which provides a step-by-step guide on the digital solutions for local retail SMEs. These programmes assist our small retail merchants to start their digital initiatives. However, most of them, at least for the small retailers in Pasir Ris, have found it hard to sustain the digital activities as they are usually a one- or two-man operation and have no resources nor skillsets to continue with these activities.
Since the intent of introducing GST to low-value items from overseas is to level the playing field, can the Ministry consider the tax income from the activity to be used to provide more support for our neighbourhood retailers, such as hiring more consultants or trainers, to guide more retailers through their digital transformation and provide a support package for the small retailers to continue to sustain their digital activities? Mdm Deputy Speaker, in Malay, please.
(In Malay): [Please refer to Vernacular Speech.] The COVID-19 pandemic has changed our patterns of purchase drastically. While many of us enjoy the convenience of online shopping, other Singaporeans, such as neighbourhood shop owners, clothes sellers and small businesses, are facing challenges in running their business. Many of them have reported their business declining by 40% to 50% and one of the reasons was that prices of low-value items from overseas retailers are not subject to GST.
By imposing GST on low-value items from overseas retailers, we can help our small retail businesses by balancing the opportunities for all traders. We must also strive to continue helping our retail businesses to undergo digital transformation so that our small businesses can remain competitive in this increasingly challenging situation.
(In English): In conclusion, Mdm Deputy Speaker, the onset of COVID-19 has seen an irreversible shift in our patterns of purchase. While many of us enjoy the convenience of online shopping, a portion of our fellow Singaporeans, our small retail merchants, are struggling to make ends meet. The introduction of GST on low-value items will help to level the playing field for our small retail merchants as, previously, low-value items from overseas retailers are not subjected to GST.
These are truly challenging times for our neighbourhood small retailers and we have to do more to assist them on their digital transformation journey. Notwithstanding the proposal above, I support the amendments.
Leader.
PAPERCUTS