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E-shoppers may have to pay more taxes for goods from overseas

SINGAPORE — Online shoppers may have to pay more taxes on goods they order from overseas sites in the future, if countries adopt recommendations by the Organisation for Economic Co-operation and Development (OECD), which has called on governments around the world to step up efforts to collect the tax revenue they are missing out on from cross-border e-commerce transactions.

SINGAPORE — Online shoppers may have to pay more taxes on goods they order from overseas sites in the future, if countries adopt recommendations by the Organisation for Economic Co-operation and Development (OECD), which has called on governments around the world to step up efforts to collect the tax revenue they are missing out on from cross-border e-commerce transactions.

In Singapore, for instance, Goods and Services Tax (GST) need not be paid for imported items bought online by locally based consumers, except for dutiable products, if the cost, including insurance and freight charges, amounts to S$400 or less. Therefore, many online shoppers spread out their purchases where possible to avoid paying the tax.

In its final set of recommendations released on Monday (Oct 4) aimed at battling offshore tax avoidance through what it calls base erosion and profit shifting (BEPS), the OECD said that although no specific tax rules have been developed for the digital economy, administrators should consider tackling challenges with other actions recommended in the overall plan.

The OECD said in its report that the digital economy presents challenges for value-added tax (VAT) collection, particularly where goods, services and intangibles are acquired by private consumers from suppliers abroad.

“The collection of VAT or goods and services tax (GST) on cross-border transactions, particularly those between businesses and consumers, is an important issue. Countries are thus recommended to apply the principles of the international VAT or GST guidelines and consider the introduction of the collection mechanisms included therein.

“This issue is particularly acute in the online business-to-consumer market, and greatly affects the level playing field between domestic and cross-border suppliers,” the report added.

Because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes, the OECD said. It said that some business models to be examined from a tax perspective include several varieties of e-commerce, app stores, online advertising, cloud computing, high-speed trading and online payment services.

Of the estimated S$4.5 billion generated in e-commerce revenue here in 2013, about 55 per cent involved cross-border transactions, according to data from Spire Research and Consulting. This represents an estimated tax revenue impact of S$100 million to S$175 million for Singapore in the year, said Spire.

The retail sector is a major contributor to Singapore’s economy and the rise of e-commerce —overwhelmingly dominated by overseas merchants — has resulted in more money flowing out of the country as well as a loss of tax revenue. Local businesses are also placed at a competitive disadvantage.

Experts have noted that in general, overseas online retailers are not taxed here on their income generated from Singapore consumers. However, local brick-and-mortar stores and businesses have to pay income tax on revenue earned.

Mr Kor Bing Keong, partner for Indirect Tax – GST at EY Singapore, said the OECD reforms will have an impact on online consumers and merchants alike.

“Based on the trend around the world, countries such as Norway, South Korea and member states of European Union have already taken steps to collect GST or VAT on the digital economy, and other countries such as Australia and New Zealand have announced their intention to do so. It would appear that the additional tax to be collected is not insignificant,” he said.

“It would certainly mean additional administrative work and compliance costs as online merchants may be required to register for GST or VAT in more than one country arising from legislative changes introduced to collect GST or VAT on the digital economy.”

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