Online shops and shoppers in Singapore to face taxes soon

Goods and services tax (GST) will soon be applied to e-commerce purchases in Singapore, experts believe.

The Singaporean government is now mulling over ways to levy taxes on e-commerce businesses and goods and services tax (GST) will soon be applied to e-commerce purchases, experts believe.

With the government's aim to diversify its tax base and generate more income from this lucrative industry, experts say online shopping sites operating in Singapore will soon be required to register their business for GST. Additionally, customers might also be paying tax on goods and services purchased online.

Also read: Is Singapore ready for a bump in GST that is among region's lowest?

The senior minister of state for Law and Finance Indranee Rajah talked about the potential levy in an interview with Bloomberg on Tuesday, November 21. Rajah revealed that e-commerce could be subject to local tax policies soon.

"You can imagine, 20 years from now, the way people purchase is very different and by that time online platforms will be mainstays, so if that's not part of the tax regime, there's going to be a lot of holes there," said Rajah.

Earlier in the year, finance minister Heng Swee Keat first announced that the government was considering methods to tax online shopping. At the moment, Singapore set the S$400 cap for tax exemptions on online purchases of goods and services.

"The $400 GST exemption threshold could be reviewed for the purposes of capturing online shopping transactions. Digital services (for example, music downloads, e-books) rendered by foreign companies could be brought into the GST net by using a 'reverse charge' mechanism, or by way of requiring them to register for GST if they were to provide to end consumers in Singapore," said Chiu Wu Hong, KPMG Singapore head of tax, in an interview with TNP.

A reverse charge mechanism stipulates payment of taxes for products purchased online from foreign retailers or manufacturers.

Yeo Kai Eng of Ernst & Young Solutions is not surprised by the forthcoming tax policy as this has been a common approach in several countries.

"The key for Singapore is not to rush into it. Consultation with key stakeholders should be made to study the impact and effectiveness of any new measures to impose GST on overseas suppliers of digital services and low-value goods before they are introduced," said Yeo.