THE "Netflix tax" will in two years hit the pockets of Singapore digital consumers and some businesses, with the government setting a 2020 deadline in charging the goods and services tax (GST) on imported services.
Singapore will follow jurisdictions such as Australia, the European Union, Japan and Korea, in taxing services sourced from abroad.
This will make Singapore the first country in South-east Asia to introduce a tax on the digital economy, noted Koh Soo How, Asia-Pacific indirect tax leader, PwC Singapore.
But he added that Thailand, Malaysia and Indonesia are already considering such a tax as well.
Singapore's GST is now at 7 per cent, but this will rise to 9 per cent in the "earlier" part of 2021 to 2025.
Singapore's Finance Minister Heng Swee Keat said the move is to ensure that the country's tax system remains fair and resilient in a digital economy.
The surging growth of the e-commerce market is no doubt a factor as well. Singapore's e-commerce market is expected to hit more than S$7 billion by 2025, with cross-border transactions making up about 55 per cent of the e-commerce market.
"The proposed e-commerce tax allows Singapore to broaden the scope of GST and provide a new and sustainable revenue pipeline for the government," noted PwC's Mr Koh.
Singapore is still reviewing the decision on taxing low-value imported goods, given the ongoing international discussions on how GST can apply, said Mr Heng. Australia is set to be the first in the world to tax low-value imported goods this year.
For businesses selling imported services to consumers, such as media streaming platforms, they will need to be registered with the taxman here, and collect GST on behalf of the Inland Revenue Authority of Singapore.
But this will only apply to overseas vendors whose annual global turnover exceeds S$1 million, and whose sale of digital services to consumers in Singapore is more than S$100,000. The S$1 million-mark is also applied to suppliers in Singapore, while the digital-sale threshold is meant to minimise the compliance burden for small overseas vendors, said the Ministry of Finance in a press statement.
In enforcing GST registration by qualifying services firms, tax authorities have arrangements that would enable the jurisdictions to exchange information on overseas vendors already registered in their local territories, PwC's Mr Koh pointed out.
Netflix, which globally raked in US$3.3 billion in revenue in the last three months of 2017 alone, has not published its numbers on its subscriber base in Singapore.
However, separate numbers from Netflix as reported by The Straits Times in June suggested that Netflix subscribers here are serious binge TV watchers. They finish a TV series in an average of three days, a full day faster than the global average.
Another popular media streaming service here is Spotify, which is loss-making, but clocked about US$3 billion in revenue globally in 2016.
PwC's Mr Koh noted that consumers may still value the wider variety of digital services, so it is uncertain if the tax will dent shopping for digital services from overseas.
For businesses buying services from overseas, such as marketing, accounting and IT services, the bill would jump more than a few cents. But to be clear, businesses buying imported services are eligible for a GST refund as long as such an input is used to make taxable supplies of goods and services.
Only businesses that cannot claim any refund of GST, or can only seek a partial refund, will have to apply a reverse charge to account for this new GST charge for imported services.
A reverse charge means a business would pay to the tax collector the GST on imported services, and then claim back the amount paid.
Businesses that would be unable to claim a GST refund for such imported services include banks, finance firms, and residential property developers, due to the non-taxable goods and services they sell. For example, the taxman does not collect GST on bank loans sold to customers.
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