Delivered in Parliament on 2 November 2021
Mr Speaker, it felt like yesterday when I last spoke on the Goods and Services Tax or 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 sales of goods. Meanwhile, Covid-19 has resulted in dual impacts to the retail sector in Singapore: first an acceleration in the already rapid growth of the e-commerce market, and secondly the continued struggle of bricks-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-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 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 business to compete effectively.
A year ago, Finance Minister Lawrence Wong shared that he was very happy that I brought up this point and supported it, because the MOF will certainly look for ways to raise more revenues, and I believe 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 1st January last year, GST is now payable on digital services provided by 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 OTT services, SaaS (Software as a Service) and other forms of digital services witnessing prolific growth, due to the change in consumption patterns brought about 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 the 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 thus far?
Second, I understand that from 1st of 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 in Singapore, and with these companies 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’re 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 Government’s behalf. A quick search on the IRAS GST Registered Business Search throws up 4 records for Shopee, 5 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 in relation to this is one of tax efficiency. IRAS has been an efficient tax authority, and has 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 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 an adjacent one, and while Singaporeans may not be able to travel overseas as freely as we wish to, we 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 bringing 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 S$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 Mr Speaker, I would like to speak about a number of broader but pertinent issues relating to the 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 1st January 2023 coupled with the “sooner rather than later” hike in GST rates could mean a double whammy for consumers.
Yet Mr Speaker, this impending GST hike is weighing on not just consumer confidence, but also on businesses, especially the retailers hard hit by Covid-related restrictions. The Singapore Tenants United For Fairness group, 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 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 the Monetary Authority of Singapore is concerned enough about inflation to surprise the market with a tightening of monetary policy in October, 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 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 among other conditions. These may be progressive elements 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 SINGA bill was passed earlier this year. We are casting our GST net 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 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. Mr 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.