Two years ago, on 1 January 2023, Singapore began to impose Goods and Services Tax (GST) on imported low-value goods (LVGs), which are goods that cost S$400 or less. It was an important change as these imported goods had previously not been subject to GST.
This policy change was effected via an extension of the Overseas Vendor Registration (OVR) regime which requires overseas suppliers to register, charge, and collect GST on goods and services provided to Singapore consumers. The reverse charge (RC) regime imposes GST on business-to-business supplies procured by local businesses from overseas suppliers. These local businesses would pay for GST as if they were the overseas suppliers, and claim GST as an input tax, subject to the GST input tax recovery rules. The RC regime was extended to LVGs with effect from 1 January 2023. First implemented on 1 January 2020 to impose GST on digital services, the OVR regime was later extended to LVGs and non-digital services from 1 January 2023.
Why GST on Imported Low-Value Goods
The implementation of the OVR regime ensures that Singapore’s tax system remains fair and resilient in a digital economy, in view of the rapid growth of the digital economy and a notable shift in consumer behaviour towards online shopping. Its primary aim is to ensure fair taxation by subjecting overseas suppliers to the same GST obligations as local businesses, thus creating a level playing field and fostering an equitable competitive landscape.
The Singapore government’s decision to implement GST on LVGs followed years of planning and effort. In 2017, the Inland Revenue Authority of Singapore (IRAS) and Singapore Customs (Customs) began considering ways to tax digital transactions in line with recommendations from the Organisation for Economic Co-operation and Development (OECD). Ultimately, the agencies adopted a vendor collection model similar to those implemented in Australia and New Zealand.
The government announced this policy change in 2021, giving suppliers ample time to adjust and comply with the new requirements. Reflecting on the implementation journey, Lee Imm, Director of the Large Businesses Branch at IRAS, and Winston Tay, Assistant Director-General at Customs, said the imposition of GST on LVGs underscores Singapore’s commitment to adapt its tax policies to the changing global business environment.
The Need for an Equitable Taxation Framework
Over the last decade, the global digital economy has grown significantly, achieving a growth rate two and a half times higher than that of the physical economy. As a result, many companies operate without a physical presence in the markets where their customers are located, enabling them to circumvent certain traditional tax laws that were originally designed for brick-and-mortar businesses.
Singapore’s digital economy, particularly its fast-growing e-commerce sector, is a significant driver of the nation’s economic growth, contributing S$106 billion in 2022.
GST in Singapore is applicable to almost all goods and services, with a few exceptions. Since GST is a tax on local consumption, the government believed it ought to be imposed on all goods and services consumed in Singapore, regardless of their origins.
Accordingly, the government changed the policy on LVGs, which had been granted import GST relief to facilitate efficient customs clearance given the high volume of goods processed at the borders. Singapore’s vendor collection model is modelled after the regimes in other jurisdictions such as Australia and New Zealand. It was deemed the most effective for GST collection in Singapore, balancing the ease of compliance with administrative costs; it also minimised the compliance burden for MNCs operating across multiple jurisdictions.
Under the OVR regime, overseas vendors with a global turnover exceeding S$1 million and online sales to Singapore consumers over S$100,000 must register with IRAS. Once registered, these vendors must file for GST; otherwise, they face penalties for non-compliance.
How Government Agencies Ensured Change Readiness
Effective collaboration between IRAS, Customs, and the Immigration & Checkpoints Authority (ICA) was instrumental to the eventual seamless rollout. IRAS handled GST policy and compliance, Customs oversaw permit declarations, while ICA was responsible for border security, which included checks conducted at the borders to ensure the legitimate entry of goods into Singapore.
A joint task force, comprising a core leadership team from the three government agencies, was established after the announcement of the policy change. Apart from setting timelines, responsibilities, and deliverables, the task force also convened regularly to address cross-agency issues, adopting a whole-of-government approach.
In addition, various working committees were formed to focus on areas such as outreach to stakeholders, compliance checks and data collection. Catering to the needs of diverse vendors including e-marketplace operators and transporters, the agencies organised seminars, webinars, and published e-learning videos and an e-Tax guide to prepare them for compliance. They also offered targeted support, including individual assistance for GST registration and implementation.
Anticipating challenges, such as the possibility of double taxation, that may arise, the agencies put in place cross-agency escalation protocols and trained support staff to manage helplines.
As a result of the meticulous planning, early communication, and extensive outreach efforts undertaken by government agencies, the OVR regime for implementing GST on LVGs was successfully rolled out.
To read more about the OVR regime, please visit the Centre for Management Practice website by clicking here. This case was written by Professor Emeritus of Finance (Practice) Annie Koh and Dr Cheah Sin Mei of the Centre for Management Practice at the Singapore Management University.