Singapore: Taxing The Digital Economy: Impending Changes To GST In Singapore

Last Updated: 7 April 2017
Article by Edmund Leow and Jia Xian Seow


Should digital downloads, streaming services and online purchases from foreign entities be subject to goods and services tax (GST) in Singapore? How about off-premise cloud computing?

On 20 February 2017, many in Singapore tuned in to listen to Finance Minister, Heng Swee Keat, delivering the Government's Budget Statement (the Budget Speech). Not many, however, may have noticed a brief, but significant comment made by the Minister regarding the Base Erosion Profit Shifting (BEPS) Project, as well as adjustments being made by some countries to their GST systems in the context of increasing digital transactions and cross-border trade. These international developments have far-reaching effects, whether on multinational or local enterprises, or even consumers, given the pervasiveness of the internet in business and daily living.

The BEPS Project was initiated by the Organisation for Economic Co-operation and Development (OECD) and the G20 countries, to combat tax planning strategies which allow multinational enterprises to artificially shift profits to low or no-tax locations where there is little or no economic activity. The BEPS final package of reports was issued in October 2015, and in June 2016, Singapore joined as an associate member to work together with the OECD and G20 countries on the implementation of the final package measures (To find out more, please visit here).

The problem

Although the BEPS package is heavily focused on direct or income taxes, Action 1 of the final package (Addressing the Tax Challenges of the Digital Economy) notes that because the digital economy is increasingly becoming the economy itself, it would not be feasible to ring-fence the digital economy from the rest of the economy for tax purposes – and that includes indirect tax, or for Singapore's purposes, GST.

The evolution of technology has dramatically increased the capability of private consumers to shop online and the ability of businesses to sell to consumers globally without the need to be present physically or in the consumer's country. Without any update in countries' tax rules to address the ever-changing business models in the digital economy, nor standardisation among countries on how cross-border supplies are taxed, tax leakages are fueled, and also, as indicated by our Finance Minister, uneven playing fields are created between local businesses which are GST-registered, and foreign-based businesses which are not.

Generally, indirect taxes such as Singapore's GST, are taxes on consumption based on the destination principle, meaning tax applying in the location in which the product or service is "consumed". For this reason, domestic supplies as well as imports of products into Singapore from suppliers that are GST-registered, are in principle GST chargeable at standard rates, whereas exports of products consumed outside of Singapore are GST zero-rated (i.e. GST charged at 0%).

For services, GST in Singapore is chargeable depending on the belonging status of the supplier. Where a supplier of service belongs in Singapore, the supply is considered to be made in Singapore and GST chargeable. However, generally speaking where the supplier belongs in Singapore but the customer of the service belongs outside of Singapore, the service may be considered an "international service" which is GST zero-rated.

With the advent of the digital economy, however, a country with laws still based on traditional business models would struggle to effectively tax imports of digital products and services or intangibles. Examples of tax leakages in Singapore arising from GST not being charged and collected would include:

  1. online or e-commerce sales of low value non-dutiable goods by overseas suppliers, imported to Singapore customers by air or post, import value of which falls below the S$400 import relief threshold; or
  2. supplies of digital or remote services to customers in Singapore, for example, supplies to digital content including e-books, movies, TV shows and music, or online supplies of games, apps, software or educational distance learning courses.

In both instances above, the relevant good or service is being consumed in Singapore. However, in instance a), the S$400 import relief threshold was intentionally legislated about the same time GST was first introduced in Singapore on 1 April 1994, ostensibly to facilitate the high volumes of small value consignments. It is likely that the key consideration at that point was that compliance costs in accounting for small amounts of GST could very well outweigh the potential GST collected, if all imports regardless of value were subject to import GST. The unprecedented rise in e-commerce transactions since then, has however put tremendous pressure on tax authorities to track and police situations in which online retailers exploit tax breaks by under-declaring the value of their shipments, or by splitting a single transaction into multiple packages.

In relation to instance b), such services would not be taxable in Singapore under the current rules, as such supplies made by suppliers belonging outside of Singapore are not considered chargeable for supplies made in Singapore. This is currently the case, even if such services are not consumed overseas, but in fact in Singapore. These rules now appear inadequate to address the myriad situations in which the consumption of services, with the use of technology, no longer have to take place at the same location in which the supplier belongs or the service is provided. In fact, with some services of today with borderless natures, it comes close to impossible to make such a determination, for example in cloud computing, where the supplier company may be in one location, but the servers, on which numerous applications are run and simultaneously accessed by millions of users from multiple locations, are located at data centres in a variety of other locations.

Apart from the issue of tax leakage, there is the issue of unfair competition for local retailers as well, where as a result of GST not being charged and collected in instances a) and b) above, consumers in Singapore then favour overseas suppliers over domestic GST-registered suppliers of the same good or service. This issue has garnered enough attention, for it to have been raised as a point in the Budget Speech currently under study by the Government. In the old economy, the content that is now delivered digitally would have been delivered in the form of physical media such as books, tapes, records, etc. These are classified as goods rather than services, and would have attracted import GST.

Across the globe, and certainly the OECD (International VAT/GST Guidelines published on 6 November 2015), countries have adopted destination principles (meaning, taxation as the place of consumption rather than the place of production) as a core concept to be encapsulated in their indirect or GST laws. However, this leads to further questions such as, who is then liable to account for GST in supplies of digital goods and services? What mechanisms should be used for compliance and payment of GST? What solutions would be appropriate for Singapore's economy?

Possible solutions

1. Remove or lower current import relief

One possible option, in relation to instance a) above in a cross-border supply of tangible goods, is clearly the reduction or removal of import relief. Examples of countries which have already moved or are moving towards the lowering or removal of import relief include Australia, Switzerland, and the European Union (EU).

This appears to be a relatively straightforward option for the Government as it does not require the introduction of new GST legislation, and in terms of mechanisms, may rely on the pre-existing system for collecting import GST. While this serves to plug the tax leakage on this front, and also to even out the playing field for supplies of such goods, on the other hand, companies and in particular import intermediaries face much heavier compliance costs in accounting for GST on high volumes of small value consignments. Should the Government choose to reduce or remove import relief, our view is that this should be accompanied by measures to improve the existing system of tax collection, in order to mitigate the increased costs of compliance for businesses.

2. Requiring overseas suppliers to register for GST

The removal or reduction in import relief provides a possible solution for cross-border supplies of goods, but how about digital or remote services such as those in instance b), which do not pass through any customs collection points and are contracted directly by the end consumer without the intervention of domestic intermediaries?

One measure that Singapore could consider, that has also been implemented in other jurisdictions such as Australia, the EU, South Africa, and South Korea, is requiring offshore suppliers of digital services to register and remit GST on sales of services where the consumer is located in Singapore. Such a measure, if successfully implemented, would effectively contribute towards levelling the playing field between overseas and domestic suppliers, and at the same time also generate more tax revenue for the Government.

The actual implementation of such a measure would obviously be challenging for such offshore suppliers, as their clientele is likely to spread across multiple jurisdictions, each with their own separate indirect tax systems to be monitored and complied with. It has been suggested that the additional burden for these suppliers can be mitigated through a "simplified GST registration and compliance regime" (BEPS Action 1), as has been, or will be implemented in countries such as Australia and New Zealand.

Under the Australian model, an overseas supplier who sells low value goods to Australian consumers and has an annual turnover of AU$75,000 or more will be required to register and account for GST on goods imported to Australia. It has been said that this is not an especially high threshold and many foreign sellers are expected to exceed it. While foreign sellers caught by these new provisions will need to register for GST and file periodic GST returns, they can elect a limited form of GST registration to reduce their compliance burden. This allows them to only file GST returns on a quarterly basis (rather than monthly as might otherwise be the case), but the trade-off is that they cannot recover input tax credit for the GST included in their Australian costs (in practice, such costs may not be material for many foreign sellers).

However even if a similar simplified regime may be introduced in Singapore, there is the issue of convincing the suppliers to comply, meaning, an additional enforcement issue from the Government's perspective. This approach is dependent on the overseas supplier complying with the requirement to register, collect and remit the GST. Without implementing a suitable mechanism to collect the tax in the particular jurisdiction, it is unlikely that the tax would be paid and it would be difficult for tax authorities to audit and sanction them. In Australia, entities that are required to be GST registered but do not do so will be subject to compulsory registration upon identification and may have a range of administrative penalties imposed under the existing law. It has also been suggested that as a "last resort" measure, the Australian Government may possibly also use its powers to block access to overseas retailers' websites if they fail to comply with the new rules. While this measure is unlikely to have an impact on small companies, it is possible that big companies which contribute significantly to the digital economy may nevertheless comply for reputational reasons.

It has also been suggested that such a model is likely to require not only extensive changes to existing tax collection processes but also enhanced international and inter-agency (tax and customs administrations) co-operation to help ensure compliance by overseas suppliers. Such co-operation is more effective in member state countries such as in the EU, however it remains to be seen how independent states such as Singapore may co-operate with other countries. One possible avenue would be to piggyback on existing international conventions for bilateral or multilateral co-operation on direct taxes.

3. Activate the reverse charge mechanism

One other measure that Singapore could consider in addressing cross-border supplies of digital services in instance b) above, is activating the reverse charge mechanism under section 14 of the Goods and Services Act. The reverse charge mechanism works by allowing (or sometimes requiring) the customer to account for the tax on supplies received from foreign suppliers (i.e. customers self-account for GST). For obvious reasons, this is not practicable for Business-to-Customer (B2C) situations since private consumers are not required to register and account for GST.

The reverse charge mechanism may however apply in Business-to-Business (B2B) transactions, for example in the EU, where the customer must account for the tax, regardless of whether the supplier is based in the EU or otherwise. In the B2B context in Singapore, there is the issue of whether the reverse charge would also apply to customers who are not GST-registered. Even if the recipients are GST-registered, it is expected that in most situations, domestic businesses would be able to claim an input tax credit on the GST accounted for, resulting in an effective zero collection of GST revenue on such transactions, i.e. self-accounting of GST would essentially be offset by the same amount of input tax credits claimed. From the business perspective, the implementation of a reverse charge system will also inevitably require additional compliance efforts involved in the changing of internal processes to address such additional requirements.

The main business sectors from which GST revenue could potentially be collected from, would be the financial services sector and the residential property sector which make exempt supplies. Such companies can only claim input tax credits to a limited extent. Generally, input tax incurred in the making of exempt supplies is not claimable unless the De Minimis Rule is satisfied.

The reverse charge mechanism is thus not likely to be an effective solution on its own, given the above limitations.


It is unclear at this point, which direction the Government will choose in relation to this issue, but it is clear that the eventual solution(s) would have to strike a balance among multiple objectives, including the efficient collection of tax, minimisation of compliance burdens, promotion of local fair competition (but also free movement of goods and services), and the upholding of the destination principle.

It also bears noting that indirect tax rules and systems cannot be considered in a vacuum in the context of the digital economy, which also raises important questions on how direct tax rules and systems should be modified to adapt to constantly changing economic and business models. As mentioned above, the BEPS package is in fact focused mainly on direct taxes, and the measures contemplated will have a substantial impact on indirect taxes and GST, for example with respect to the definition of "permanent establishment", transfer pricing, and tax information exchange among jurisdictions.

Just as we have seen a paradigm shift in the way that businesses are being conducted in the digital economy, we have likewise also seen how countries have started rethinking and reinventing tax systems, rules and concepts in a coordinated manner—the tax revolution too, has begun.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions