Axe the gap with tax: Will the GST Amendment Bill level the playing field for local business?

Under the bill, goods worth $400 or less imported by air or post will be subject to GST.

Local businesses have been at a disadvantage as their products and services are subject to goods and services tax (GST), whilst their overseas counterparts are not, allowing the latter to sell the same products without charging GST. This disparity is what the GST Amendment Bill aims to address.

Under the bill, the scope of Singapore’s existing overseas vendor registration (OVR) regime and reverse charge (RC) regime will be expanded to include low-value goods imported by local customers starting 1 January 2023, subjecting goods worth $400 or less imported by air or post to tax.

Lee Shih Hui, Principal (Tax Advisor) at Baker McKenzie Wong & Leow in Singapore, said that before the bill’s passage, only digital services and imported services were covered by OVR and RC, respectively.

The bill also widens the scope of the OVR regime to cover remote services whether digital or non-digital services, according to Lee.

"As such, non-digital services (within the scope of remote services) acquired by local consumers from overseas supplies can be subject to GST from 1 January 2023. The key provision of the GST Amendment Bill, which will effect this change is Clause 25 of the GST Amendment Bill," Lee said.

The provisions provided for by the bill allows for the further levelling of the playing field for local business, according to Lee.

“Following the amendments to the OVR and RC regimes, we would expect local suppliers to be competing on a more equal footing with overseas suppliers from a GST perspective,” Lee told Singapore Business Review.

This was echoed by Ong Ken Loon, Head of Tax and Private Client Services at Drew & Napier LLC.

In a separate interview with Singapore Business Review, Ong said the exclusion of imported low-value goods from tax has put local businesses at a “competitive disadvantage.”

Before the amendment to the bill, Ong explained that local GST-registered businesses were required to “charge GST on their sales to domestic customers whilst overseas vendors are able to sell to the same customers without charging GST.”

“Singapore-based customers would, therefore, find it cheaper to purchase goods and services from the overseas vendors,” she added.

Lee, however, underscored that GST is just one factor in the competitiveness of local businesses.

“The impact of the amendments (i.e., whether they will affect consumer purchasing behaviour) will be difficult to isolate given the myriad of other considerations that affect consumer decisions, such as product offerings, post-purchase service, and customer experience,” the Baker McKenzie Wong & Leow's tax expert said.

Impact on overseas businesses

Ong doubts that the bill would deter large e-commerce businesses from continuing their operations in Singapore in terms of systems, saying that most of them are probably registered on Singapore’s OVR.

“Scaling up from there should not pose a big issue given that Singapore market is a relatively small market, compared to other countries (including Australia, UK, and the EU) where similar regimes have been rolled out for some time,” she said.

Lee, for her part, said overseas businesses will likely be faced with increased obligations and compliance costs with the implementation of the bill.

“This may be balanced out with the simplified compliance regime such as reduced price display and invoicing requirements under the OVR regime,” Baker McKenzie Wong & Leow's tax expert said.

‘Not a magic bullet’

MP Yeo Wan Ling, in her speech during the bill’s reading on 2 November, said levelling the playing field through the bill might just be a “short term” solution, thus suggesting that the bill be complemented with a “wider ecosystem change that not only props up retail businesses but elevates the retail experience in Singapore.”

Both tax experts agreed with Yeo’s statement, with Lee saying that the bill is not a “magic bullet” and should be “complemented by other policies and private sector investment in the retail space in Singapore.”

“The government may consider looking into new retail trends such as sales and auctions over social media live streams, using [artificial intelligence] to drive recommendations to individual consumers, and even augmented reality to show how clothing fits on a consumer without them having to try it on. Where these trends are worth promoting, they can be incentivised by integrating them with the retail experience,” Lee said.

Ong, for her part, said “a weaker team would still lose to a stronger team” even on a level playing field which is why businesses should “constantly review and refresh their service offering to stay ahead of the competition.”