According to recommendations by the Organization for Economic Cooperation and Development (OECD), governments should do more to collect taxes on goods that consumers order from overseas websites in the future. This in turn would lead to consumers being levied with higher taxes for purchased goods.
In Singapore, consumers do not need to pay Goods and Services Tax for imported items bought online, except for dutiable products, if the costs of the products (including insurance and freight) do not exceed $400. This has led online shoppers to spread out their purchases where possible to avoid paying taxes.
Explaining its recommendations, the OECD wrote: “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.”
According to data from Spire Research and Consulting, of the estimated S$4.5 billion generated in e-commerce revenue in Singapore in 2013, about 55 per cent involved cross-border transactions. For Singapore, this means an estimated tax revenue impact of S$100 million to S$175 million for that year.
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.
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.