Goods and Services Tax (Amendment) Bill

Order for Second Reading read.

6.03 pm

The Second Minister for Finance (Mr Lawrence Wong): Mr Deputy Speaker, I beg to move, "That the Bill be now read a second time."

The Goods and Services Tax (Amendment) Bill 2018 covers six tax changes. These include a measure announced in the 2018 Budget, as well as five changes arising from periodic reviews of the GST regime to ease business compliance, clarify existing legislation and improve tax administration.

We sought views from the public on the draft Bill earlier this year. MOF has evaluated all the feedback received and incorporated them where relevant to the draft text of the Bill.

Let me start by highlighting the key amendment that we are making in this Bill, which is the introduction of GST on imported services, which was announced in the Budget this year. This measure will ensure that our GST regime remains fair and resilient in a digital economy, and will take effect from 1 January 2020.

Currently, GST is applicable on services only in instances where the service is supplied in Singapore, essentially when the supplier has an establishment in Singapore. With the digital economy, it has become increasingly common for services to be supplied by overseas suppliers, without the need for the suppliers to establish a presence within Singapore. We welcome this development, as it allows businesses and consumers to have access to services from overseas suppliers readily.

But at the same time, we must ensure that our tax rules are updated, such that both imported and local services are treated on a level playing field and accorded the same GST treatment. This means that GST ought to apply on local consumption of services, irrespective of whether the service is supplied in Singapore or from abroad.

So, GST on imported services will be introduced through a Reverse Charge mechanism for business-to-business (B2B) imported services, and an Overseas Vendor Registration regime for business-to-consumer (B2C) imported services. To ensure smooth implementation of the measures, MOF and IRAS have consulted extensively with businesses as well as industry associations. I will explain in greater detail how these measures work.

Normally, GST-registered businesses will charge and collect GST on their supplies of services to customers, and then they will pay the GST collected to IRAS. But GST is not charged by overseas suppliers as they are not registered for GST in Singapore. So we have proposed a Reverse Charge mechanism where local business customers that are GST-registered and purchase services from overseas suppliers will instead be responsible for accounting and paying the GST to IRAS. That is why it is called Reverse Charge because instead of having the supplier account for and pay the GST as it is traditionally done, we are now asking the customer to do so. Examples of B2B imported services include management, IT and payroll services charged by overseas service providers to local business customers.

I should clarify that that the vast majority of local businesses purchasing services from overseas suppliers will not be affected by Reverse Charge. This is because we will not apply Reverse Charge on businesses which can claim full refund of the GST they incur on their purchases, including imported services. So, such businesses need not pay the GST on imported services, only then to claim a full GST refund later. Essentially they are paying and then claiming in full, so really, there is no need to do so, and that is why we are not applying reverse charge on such businesses, and this will avoid unnecessary compliance burden for these businesses. Instead, businesses affected by Reverse Charge are primarily those that are not entitled to full GST refund in the first place, for instance, when they make GST-exempt supplies, and these affected businesses are mainly financial institutions and residential property developers.

So, earlier the Reverse Charge was for B2B. On the B2C front, overseas suppliers and electronic marketplace operators will be required to register for GST under our Overseas Vendor Registration, or OVR, regime, and they will have to register if they have a global annual turnover of $1 million or more, and make sales of digital services of at least $100,000 to local consumers, so it is a two-tier criteria. These GST-registered overseas vendors will then charge and collect GST on their sale of digital services to consumers in Singapore, and pay the GST they collect to IRAS. Examples of such B2C imported digital services are video and music streaming services, mobile applications and software.

Reverse Charge and Overseas Vendor Registration are not new, and have already been adopted in several jurisdictions with Value-Added Tax (VAT) or GST regimes, such as Australia, New Zealand, Japan and Korea. These measures are also consistent with international guidelines for consumption taxes to address the tax challenges of the global economy.

For B2C services provided to consumers, the scope is targeted and, as mentioned earlier, covers only digital services like video and music streaming services, mobile applications and software. Such digital services form a small share of current consumption expenditure.

Clauses 5-20, 22-29 and 35-41 of the Bill provide for the tax change that I just described, on introducing GST on imported services, with effect from 1 January 2020.

As mentioned earlier, MOF also regularly reviews and refines the GST regime, and the Bill provides for other changes to existing tax policies and administration. So, let me highlight the key changes.

First, similar to the amendments introduced in the Income Tax (Amendment) Bill 2018, which were passed in Parliament last month, we will enhance IRAS’ powers to investigate tax crimes for GST.

Tax offenders and criminal syndicates are employing more sophisticated schemes to defraud the authorities, as I mentioned in my last speech when I passed the Income Tax (Amendment) Bill. And so, enhanced investigative powers are required to more effectively deal with serious tax offenders, as well as acts of obstruction which may hamper IRAS' investigations and prosecution.

The proposed amendments will enhance IRAS' investigative powers, by providing authorised IRAS officers with the power of forced entry; the power to arrest without warrant; and the power to carry out body search; subject to conditions, and I should highlight that investigation officers of other tax authorities such as the UK and US have similar powers to facilitate their investigations.

Similar to the Income Tax (Amendment) Bill 2018, we will put in place safeguards in the way these enhanced legislative powers are exercised. All these enhanced investigative powers may only be exercised by officers authorised by the Comptroller of Goods and Services Tax. These authorised officers will receive training consistent with those in other law enforcement agencies, like the Singapore Customs and the Singapore Police Force.

The amendments will also expand IRAS' power to gather from any person all information relevant to its investigations or the prosecution of offences under the GST Act. Currently, for GST purposes, IRAS may gather information relating to a person’s business transactions only. The amendment will allow IRAS to gather all information as long as it is relevant to the investigation or prosecution. For example, this could include information relating to a person’s income or assets, or information relating to accomplices.

Clauses 3, 33 and 34 of the Bill provide for all of the changes to enhance IRAS’ powers to investigate tax crimes, which I have just described.

The second broad change pertains to the proposed amendment of the GST Act to allow IRAS to share with law enforcement agencies (LEAs) information that may be relevant to the investigation or prosecution of serious crimes. Such crimes are prescribed in the First and Second Schedules to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act. Likewise, this proposal was introduced in the Income Tax (Amendment) Bill 2018. And again, other countries, like Australia, Norway, Sweden and the UK, also allow for the disclosure of tax information to LEAs to combat non-tax crimes.

The information shared is to be disclosed by the Comptroller to the head of an LEA for the purpose of the investigation or prosecution of serious crimes. Unauthorised onward disclosure of such information constitutes an offence. Clause 4 of the Bill provides for the changes.

Lastly, we propose to amend the GST Act to strengthen prosecution and deterrence of unauthorised collection of GST. Currently, an offence is committed if a non-GST registered person issues an invoice or receipt with an amount purporting to be GST. Such an offence is currently punishable by a penalty and a fine.

To further protect consumers and strengthen deterrence against unauthorised collection of GST, the proposed amendment makes unauthorised collection of GST an offence, without reference to the issue of an invoice or a receipt for such collection. This in turn allows the use of alternative evidence, such as sales contracts or service agreements, in proving unauthorised GST collection.

The amendment also introduces a heavier punishment, by way of a custodial sentence, in cases where the offence is committed without reasonable excuse or through negligence. The custodial sentence of not exceeding three years is aligned with existing penalties under the GST Act, which are similarly committed through negligence or without reasonable excuse.

In addition, our proposed amendment will counter unauthorised GST collection by introducing a new offence where a GST-registered person, or a person authorised to collect GST, collects more GST than what is allowed under the GST Act, without reasonable excuse or through negligence. This ensures that GST-registered businesses exercise due responsibility when charging and collecting GST on their supplies made, and also deters the abuse of a company’s GST-registration status. Clauses 30 to 32 of the Bill provides for this change. Mr Deputy Speaker, I beg to move.

Question proposed.

6.14 pm

Dr Intan Azura Mokhtar (Ang Mo Kio): Thank you, Mr Deputy Speaker, for the opportunity to speak on this Bill. Following the Budget 2018 announcement on the imminent GST increment from the current 7% to 9%, there has been some interest and suggestions on what more MOF can do to make GST collection more robust and equitable.

In general, I am supportive of the amendments, which largely are to impose GST on imported services, and to facilitate and enhance the powers of the IRAS to combat tax evasion and crimes. These are very much welcome, particularly with the rise in the purchase and consumption of products and services through digital means and e-commerce platforms, and the higher potential for tax evasion and cyber-related tax crimes.

Nonetheless, I seek some clarifications from the Ministry and I have one suggestion to offer for consideration for future amendments to the GST Act.

First, I would like to seek clarifications on the GST imposed on imported products and services. I am supportive of the changes to impose GST on imported products and services for both B2B and B2C transactions. This will help in creating parity between imported and local products and services. However, may I seek the Ministry's clarification on a few things?

First, are all of our current locally provided services and products through digital means or e-commerce platforms, whether B2B or B2C, done by GST-registered entities?

Two, what is the number of individuals selling products or services locally through digital means or e-commerce platforms who are not running GST-registered entities?

Three, what is the number of local entities selling products or services locally or overseas through digital means or e-commerce platforms, which are not GST-registered, but which are charging local GST on their customers?

Four, are these areas of concern for the Ministry, and, if so, how does the Ministry intend to address them? How will the Ministry address GST collection, even without evidence of invoices given to the customer, such as through online payments or transfers? Are the above examples of business transactions resulting in any loss of GST revenue?

Next, while this round of amendments does not involve differential GST rates, I would like to urge the Ministry to seriously consider imposing differential and higher GST rates, specifically for luxury items and certain other items that can have an impact on social behaviour.

To elaborate, luxury items would include more expensive alcoholic beverages, such as wine that cost more than $1,000 a bottle, and also luxury cars that cost more than $160,000 each, for instance. Would the Ministry consider imposing higher GST rates for such luxury items, where the price tiers and corresponding GST rates can be decided through engaging Singaporeans in focused group discussions and eliciting their views?

Besides, we have already imposed differential tax rates for housing, for instance, where residences that cost less than $1 million are charged a 3% Buyer Stamp Duty, while those that cost more than $1 million are charged a 4% Buyer Stamp Duty. Hence, it has been done for housing and can we now extend such differential GST or tax rates to other luxury items, too, such as cars, for instance?

In addition, there are other items, such as alcoholic beverages and tobacco products, which can have an impact on social behaviour and which can be imposed with differential GST rates. To elaborate, tobacco products, such as packed cigarettes, can be imposed with a GST rate of 10% at the minimum, while cigars, which are usually consumed by the more affluent, can have a higher GST rate of 12%-15%, for instance. Likewise, alcoholic beverages can be imposed with a GST rate of 10% at the minimum, and gradually increased depending on the alcohol content of the beverage.

Again, the price tiers and corresponding GST rates for these tobacco products and alcoholic beverages can be decided through engaging Singaporeans in focused group discussions and eliciting their views and suggestions. Tobacco products and alcoholic beverages are not daily necessities, and in order to nurture a healthier lifestyle and a more positive social behaviour, differential GST rates can be imposed so as to encourage individuals to choose alcoholic beverages of lower alcohol content, for instance, and eventually give up smoking because it would simply be too expensive a habit to have.

Mr Deputy Speaker, notwithstanding the questions I have and the suggestions I have made for further amendments in future, I stand in support of the amendments in its current form.

6.18 pm

Mr Melvin Yong Yik Chye (Tanjong Pagar): Thank you, Mr Deputy Speaker. I stand in support of the Bill. Over the recent years, Singapore's e-commerce industry has been growing steadily. According to some estimates, our e-commerce industry will generate over US$3.7 billion in revenue in 2018 alone, and the market is expected to grow to US$5.4 billion by the year 2025.

GST is an important source of revenue for Singapore. The proposed extended coverage to ensure that GST is collected for services purchased overseas serves to ensure that our GST system remains fair and resilient in this digital economy.

Mr Deputy Speaker, the Seventh Schedule of the Bill spells out the types of services that would incur GST. Subsection 2(a)(xi) extends the GST to any advertising service on any intangible media platform, where the Comptroller is satisfied that the advertisement is intended to be substantially promulgated in Singapore.

Unlike advertising on traditional media platforms, online advertising services offer advertisers the ability to target individuals with specifically tailored messages. Even if the advertiser intended for the advertisements to be substantially promulgated here, it might be hard to prove this if the authorities are only able to see a small subset of the advertisements.

Programmatic advertising is another key trend in the industry, whereby software is used to buy digital advertisements. For such advertisements, the one making the decision to show the advertisement to the individuals is an algorithm, rather than a person. I would like to better understand how the Ministry intends to investigate and enforce this.

The Bill also proposes to tax operators of electronic marketplaces. How would the authority calculate the GST payable if an online marketplace sells a mix of services that both incur and are exempt from GST? If it is based on self-declaration, how would the authorities ensure against under-declaration? I would also like to ask if consultancy or advisory services offered through such online marketplaces would attract GST.

Mr Deputy Speaker, while extending the GST to digital services is important to ensure the resilience of our tax system, but this is only half the equation. Does the Ministry have plans to extend the GST to goods purchased online? With e-commerce posing as a serious disruption to traditional retailers, perhaps the Ministry could consider ensuring a level playing field for local merchants who are required to incorporate GST, as compared to their online competitors who do not need to. Mr Deputy Speaker, with that, I support the Bill.

6.22 pm

Mr Ong Teng Koon (Marsiling-Yew Tee): Sir, the move to impose GST on imported digital services is a step in the right direction. However, it raises a number of important questions.

Digital services are becoming an increasingly central part of our lives. We all use mobile apps multiple times a day. From games to health tracking, to stock market information services, we hardly even notice them anymore. For just mobile apps alone, the market is estimated to be US$77 billion globally in 2017 and poised to grow to US$200 billion in 2020. When you add up all the value of all the digital services, including software, entertainment, online learning and search engines, the total value is mind-boggling.

At one level, the imposition of GST on overseas providers is a simple matter of levelling the playing field. Currently, Singapore-based providers are at a disadvantage. This is because they have to charge GST while their overseas counterparts do not have to. This is an issue especially for consumers. They may decide to abandon local providers for foreign ones in pursuit of what they think to be a 7% "discount". For businesses, most businesses can claim back GST. However, many small businesses may not be registered and, hence, behave essentially like consumers.

So, the idea, while bold, is fundamentally sound. But the relatively novel nature raises a number of critical questions.

First, how do we ensure even and effective implementation of this regime?

The threshold for Overseas Vendor Registration (OVR) is $1 million of global revenues and $100,000 of Singapore revenues. The $1 million global revenue threshold is very low. The implication is that many small companies will be liable under our regime. In particular, I am concerned about small marketplaces. Marketplaces exist to match buyers and sellers. Their actual revenues may only be a small fraction of the turnover on their site. Will the Ministry review this threshold and adjust it if it is found to create problems? And, if not, will there be a mechanism to review it periodically, and adjust it when expedient?

The next question has to do with efficiency of the new tax. How much revenue does the Government expect to raise through this tax? We all know that spending on digital services is growing rapidly. But how much of that would fall under this regime and how much taxes would be generated for our national coffers?

More importantly, what is the cost of monitoring and enforcing compliance? The tax regime will be global. Do IRAS and the other relevant authorities have the capabilities and the capacity? Digital service startups are proliferating, with thousands appearing everday. There could be potentially millions of small GST payers all around the globe. Can IRAS cope?

How will we inform all the affected companies and marketplaces about their liabilities under our GST regime? How will we monitor that all relevant vendors are complying with this regime? And how will we enforce penalties for non-compliance, given that they have no presence in Singapore? Is there a risk that service providers may thumb their noses at Singapore and they basically say to IRAS "catch me if you can"?

A global tax regime of this nature is likely to be complex. Will the revenue raised justify the expenditure on monitoring, collecting and enforcing the tax?

A related question is on providers abandoning Singapore. Would active enforcement result in some companies simply deciding not to serve Singapore-based consumers? Small and innovative overseas startups may not be willing to invest in the costs of compliance. They may simply decide not to serve a small market like Singapore. This could potentially deprive local companies and consumers of cutting-edge technology.

Under the new rules, Overseas Vendors are required to obtain and maintain at least two pieces of non-conflicting evidence of customers' location: Payment Proxy, Residence Proxy and Access Proxy.

It is easy to imagine smaller companies saying, "forget it, Singapore customers are just not worth this trouble". The General Data Protection Regulation in the EU was seen as onerous. There were stories of businesses that simply turned away EU customers when GDPR was introduced. They felt that compliance was just too cumbersome. And that was for a market for 500 million people!

One possible consequence is that Singapore-based customers may resort to evasion tactics. They could use VPNs, online credit cards and overseas P O boxes in order to be able to access these services. This opens them to the risk of penalties. The regime states that non-GST registered customers should not provide incorrect or false information to the Overseas Vendors. According to IRAS, "customer misrepresentation is a serious offence, and offenders may face heavy penalties". What penalties are envisaged, and how will they be enforced? Unlike people bringing in undeclared goods, there will not be any physical evidence to rely on.

The final question is a familiar one on the impact of such a tax on some consumers. If we are optimists, we could argue that this broadens the tax base. It makes our tax regime more progressive by generating revenue from overseas companies. This would free up additional resources for beneficial programmes. We can reduce other taxes that disproportionately burden lower-income groups that are already under stress.

However, there is a potential dark side to such a tax. There is increasing concern about a "digital divide". Lower income groups are going to be disadvantaged because they lack exposure to the digital world. Some digital services may also act as more affordable substitutes for physical services. For example, online learning and education and even online entertainment. The imposition of GST on such imported digital services could reduce their consumption. It could price children from lower income families out of digital experiences. And such experiences are critical to survive and to thrive in the world of Industry 4.0. Will the Government consider some form of digital GST rebates, particularly for "virtuous" digital services, such as online learning and online education?

In conclusion, the move to impose GST on imported services is a step in the right direction. As Singapore prepares itself for the new digital economy, I would like to applaud the Government for having the vision and the courage to undertake this bold initiative. I support the Bill.

6.29 pm

Mr Kwek Hian Chuan Henry (Nee Soon): Mr Deputy Speaker, I stand in support of the amendment Bill.

I would like to declare my interest as the advisor to the Federation of Merchant Associations (FMA), which represents many SMEs and micro-SMEs within our HDB heartlands.

The issue of GST for online commerce is a major issue, and the international debate in western countries has been going on for more than a decade.

Originally, exemption was given by many governments because of the difficulty of enforcement, as well as the desire to promote online commerce. However, online commerce has taken off in a way in many countries, including Singapore. Now the pendulum has swung to the other side, which is that the major online commerce companies are threatening the survival of many brick-and-mortar businesses.

Mr Deputy Speaker, I am not suggesting that we ignore the advance of technology. Online commerce is here to stay, and brick and mortar businesses have no choice to adapt. Our SMEs, especially the micro-SMEs in our HDB heartland is facing tremendous challenges this few years. Their existence, or not, will impact the fabric of our society.

Having said all that, the SMEs I speak to know that they must adapt. What I heard from some SMEs is the desire for level playing field, including on the issue of tax. I understand that today we are amending the GST to include online services for taxation purposes. Can MOF comment on the global tax trends on both taxation of online service as well as online commerce of physical goods so that we can have a more informed debate?

Notwithstanding my queries, I support the amendment Bill.

Mr Deputy Speaker: Minister Lawrence Wong.

6.31 pm

Mr Lawrence Wong: Mr Deputy Speaker, I thank the Members of Parliament Dr Intan Mokhtar, Mr Melvin Yong, Mr Ong Teng Koon and Mr Henry Kwek for supporting the Bill and also their comments on the Bill. Let me address the questions raised by the Members in four different parts.

First on the design of GST for imported services and how the measures can be effective. Both Mr Ong Teng Koon and Mr Melvin Yong raised questions on how such a regime – GST for imported services – can be effectively implemented. So, let me highlight a few salient aspects of the design of the proposed measure that will enable us to ensure effective implementation.

First, Singapore adopts, as Members are aware, a broad-based single rate GST regime with few exemptions. This provides a good foundation for businesses to comply with the new GST rules for imported services without much need to classify and ascertain the applicable GST treatment, as the same GST rate applies to most transactions.

We build on this foundation by learning from the experience of other jurisdictions and consulting extensively with industry players on how rules may be formulated to impose minimal compliance burden. These include the Business Industry Advisory Committee to the OECD, the Singapore Retailers Association and the Association of Banks in Singapore. Here, I would like to thank all stakeholders for providing us with feedback. We will continue to engage businesses as we prepare for implementation from 1 January 2020.

Second, where possible, we have ensured consistency in our rules with those of other jurisdictions. This eases complaince, promotes effectiveness and provides certainty for the industry. For example, the scope of digital services that is subject to GST as well as the definition of electronic marketplace operators under the Overseas Vendor Registration (OVR) regime are generally aligned with that in other jurisdictions.

Third, our rules ensure that we do not impose unnecessary GST liability on businesses. As I mentioned just now, under reverse charge for B2B imported services, we do away with the need for local businesses to account for GST on the services they import if they can already claim a full refund of GST incurred on their purchases. And we put in place a two-tier registration threshold for the OVR regime for B2C imported services, which is based on global annual turnover and sales to Singapore customers. The $1 million global turnover maintains parity with the GST registration threshold of local suppliers, while the $100,000 threshold on sales to Singapore ensures that we bring into the tax net overseas vendors with significant sales to consumers here.

These features enable us to focus our enforcement of GST for imported services on these overseas vendors. This is also in line with the concern highlighted by Mr Ong Teng Koon on enforcing the system vis a vis the millions of suppliers worldwide. By designing the system as we have, I think it does facilitate enforcement and implementation.

Mr Ong and Mr Melvin Yong also asked how we will enforce compliance for overseas vendors for B2C services. IRAS will make use of various information sources to identify and engage potential registrants as well as to verify the GST reporting by these businesses. Similar to domestic traders, business audits will be conducted by IRAS on a risk-based approach. We already do this for our regular GST regime. So, we will extend this for the OVR as well. IRAS can also use provisions in bilateral tax agreements to obtain information on overseas vendors from other tax jurisdictions. In the event of non-compliance, the existing penalty and enforcement regime under the GST Act will apply. IRAS will raise additional tax assessments, apply penalties and recover the outstanding tax payable directly or through the appointment of agents.

We are not the first country to do this. So, we have learnt from the experiences of many other jurisdictions, including Australia, New Zealand and South Korea, which apply similar penalty regimes to non-resident registrants, as with domestic businesses.

That said, as I highlighted earlier, many of these overseas businesses have experience meeting similar VAT/ GST obligations in other jurisdictions. Many of them are familiar because we are not the first country and they have experience meeting similar GST obligations in other jurisdictions. So, we do not anticipate significant compliance issues. Experience from other jurisdictions show that these multinational businesses are likely to comply to avoid reputational damage.

On Dr Intan's queries, not all digital services consumed in Singapore, be it B2B or B2C, are supplied by GST registered businesses. So, there are non-GST registered suppliers for such services. We do not track the number of these services; they may be small companies or even individual entrepreneurs providing such services on various online platforms. We do not track their numbers. So, Dr Intan asked about such non-GST registered businesses and the concern whether they may charge GST on their sales. That is indeed a concern, and that is why we currently impose penalties and fines on all unauthorised GST collection offences under the GST Act.

In this Bill, we have proposed heavier punishment, including custodial sentence and new offences to further strengthen prosecution and deterence of unauthorised collection of GST. This applies for both local and overseas suppliers.

Ultimately, GST is a self-assessed tax. This applies even in the existing GST regime. It is the responsibility of GST-registered businesses to apply the correct GST treatment on their transactions. On the Government's part, we will continue to engage the industry to keep the GST for imported services effective, easy to comply and certain. That way, we make the GST system a resilient one in generating tax revenue to fund public services.

Mr Ong asked how much revenue will we expect to collect from GST on imported services. We expect additional revenue of about $90 million per year. But I should also explain that it is not just about the delta in revenue collection because this move also seeks to defend our current revenue base from being eroded as more and more transactions move online. So, if we were not to do anything, potentially, the revenue base may get more and more eroded and we may be losing more revenue. So, we have to make this move now to defend our current revenue base from being eroded.

Mr Ong made the comment that overseas businesses may decide to stop their sales to Singapore as a result of the tax measure. It may be a concern for some, but I should highlight as I said earlier that, firstly, we are not the first country to impose GST on imported services; other jurisdictions have done so and this is in line with the global movement towards taxation of the digital economy. Secondly, for many businesses, Singapore's appeal to businesses is not premised solely on tax alone. Tax is important but there are many other fundamental attributes such as our high digital penetration, our sophisticated and tech-savvy consumers, our extensive connectivity as well as our robust IT and logistics infrastructure. So, overall, we are still in a very strong position to be a regional e-commerce hub.

Mr Melvin Yong raised queries relating to the taxation of online advertising services and also asked whether consultancy and advisory services will be subject to GST under the new regime. Briefly, the scope of tax under OVR is consistent with current GST rules and how they are applied to local suppliers.

So, for online advertising services, whether or not GST is applicable depends on the place of circulation of the advertisement. Under existing rules, media advertisement that is circulated substantially or wholly outside Singapore qualify for zero-rating. Likewise, if provided by overseas suppliers, such advertising services are not subject to GST. So, we are using the current GST rules and if it is zero-rated locally, then when supplied under OVR, it will not be subject to GST.

By the same logic, for advertisements placed on the Internet, we regard the viewer access is generally global. Such advertisements can qualify for zero-rating, and correspondingly will not be subject to GST under the OVR regime.

For B2C consultancy or advisory services, they will be subject to GST if the services meet the definition of "digital services", that is, if the service is supplied over the internet or other electronic network with minimal or no human intervention.

Mr Henry Kwek and Mr Melvin Yong asked whether there are plans to extend the GST measures to low-value imported goods. Most jurisdictions have in place an import relief threshold for imports of goods via air and post. Imported goods below this threshold will not be subject to GST, so as to facilitate clearance at the border, and to ease administrative costs. In Singapore, I am sure Members are aware, this threshold stands at $400. Below $400, there is no need for GST. Above that, you have to pay GST.

The taxation of low-value goods is a relatively new tax development and we are monitoring international developments on this front. Australia is the first in the world to implement a Vendor Collection regime for overseas suppliers to collect GST on imported goods in July this year. Switzerland and New Zealand, and the EU have indicated plans to do so in 2019 and 2021 respectively. So, again, as we have done for imported services, we first look at what other jurisdictions have done, we study their experiences and then, we learn from these experiences to see what can be done in Singapore. That is what we are doing with regard to the GST measure for low-value imported goods.

Mr Ong Teng Koon shared his concern on a "digital divide". That is indeed something that all of us ought to be concerned about. There are several ways we are dealing with this. First, we have in place the permanent GST Voucher scheme that provides annual assistance to citizens. This offsets GST expenses for many Singaporeans, especially retiree and lower income households. We review the GSTV scheme regularly to ensure that there is adequate assistance for the lower income.

Second, as Singapore becomes more connected, the Government will also do more to ensure digital inclusion and accessibility. There are already many programmes under IMDA which provide lower income households with subsidised broadband and devices and access to the Internet. In addition, the Silver Infocomm Initiative offers affordable IT classes to equip seniors with relevant basic digital skills. And of course, Singaporeans can use their SkillsFuture Credit to offset course fees, including digital courses offered by online platforms.

Finally, Dr Intan proposed introducing differential and higher GST rates on luxury items, as well as items like alcoholic beverages and tobacco products. I understand Dr Intan’s intent. This is not a new suggestion. We have debated this in the House everytime we have a Budget and when we talk about the GST regime. Basically, we agree fully with the objective of having an overall tax and transfer system that is progressive, one where we give more help to those who have less. I think all of us share fully that intent. But we have also seen the experience of other countries with a multi-tiered GST system which introduces immense complexities in trying to define what are regarded as basic essentials and what are to be treated as luxury goods.

In some jurisdictions, attempts at classification have resulted in bizarre outcomes, endless disputes and loopholes that may very well be exploited and end up being counter productive.

So, Singapore’s adoption of a broad-based, single-rate GST regime, coupled with the permanent GST Voucher Scheme is a more equitable approach in creating a fair and progressive tax system. We have a broad-based single rate GST but we couple that with a permanent GST Voucher which provides targeted transfers and help at the lower income and retiree households. By doing so, we create a GST system that is progressive, that effectively has lower tax rates for the lower income while those with the highest means pay at the full rate. Besides luxury items, Dr Intan also proposed higher consumption tax rates for alcoholic beverages and tobacco products. We are mindful of the negative externalities arising from the consumption of such products, as she has highlighted, and in fact, these are already taken into account by way of excise duties. And so, these duties are reviewed regularly and updated from time to time.

Mr Deputy Speaker, I hope I have addressed the question and comments raised by the Members. I would thus like to reassure everyone that MOF will continue to review our tax regime regime regularly to ensure its relevance and effectiveness in the digital economy. Thank you, Mr Deputy Speaker. I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lawrence Wong].

Bill considered in Committee; reported without amendment; read a Third time and passed.