Goods and Services Tax (Amendment) Bill

Order for Second Reading read.

5.59 pm

The Second Minister for Finance (Ms Indranee Rajah): Mdm Deputy Speaker, I beg to move, "That the Bill be now read a Second time".

The Goods and Services Tax (Amendment) Bill 2021 covers four sets of amendments. Two give effect to measures that were announced in the 2021 Budget Statement. The other two arise from our periodic review of the GST regime to clarify GST treatment and improve GST administration.

MOF sought views from the public on the draft Bill earlier this year. The public consultation was conducted from 6 to 27 July 2021. MOF has published on 1 October 2021 our responses to the key feedback received. We have evaluated the feedback received and incorporated them where relevant and feasible to do so. We thank the contributors for their inputs which have allowed us to refine the amendments.

Let me start with the first two sets of amendments, which relate to the changes announced in the 2021 Budget Statement on 16 February 2021.

We impose GST on all goods imported via land or sea, regardless of value. We also impose GST on goods imported by air or post with a value above $400. We currently do not have GST on goods imported by air or post with a value of $400 and below. This is a gap which puts local businesses at a disadvantage.

To close this gap, the first set of amendments introduces GST for goods that are valued up to the current GST import relief threshold of $400, or "low-value goods", that are imported via air or post from 1 January 2023 onwards.

The first set of amendments also introduces GST for business-to-consumer, or B2C, imported non-digital services, such as live interaction with overseas providers of educational learning and telemedicine.

The extension of GST to such imported low-value goods and B2C imported non-digital services under these amendments will complement the GST that we already levy on business-to-business, or B2B, imported services, and on B2C imported digital services from 1 January 2020.

Other jurisdictions have extended their GST or Value Added Tax, or VAT, similar to our proposed amendments. Jurisdictions that have extended their GST or VAT regimes to cover imported low-value goods include Australia, the European Union, New Zealand, Norway, Switzerland and the United Kingdom. Similarly, jurisdictions which already tax B2C imported non-digital services include Australia and New Zealand.

The introduction of GST for low-value goods imported via air or post and for imported B2C non-digital services is necessary to ensure a level playing field for our local businesses and allow them to compete effectively. Overseas suppliers of goods and services will be subject to the same GST treatment as local suppliers. These amendments will also keep our GST system resilient in a growing digital economy.

The legislative changes for the first set of amendments can be found in clauses 2 to 4, 6 to 15 and 17 to 26 of the Bill.

Next, I will deal with the update on the GST treatment for a supply of media sales.

The second set of amendments updates the GST treatment for a supply of media sales. Media sales refer to the sale of advertising space for hardcopy print and outdoor advertisements, advertising airtime for broadcasting via TV and radio, and web advertising via email, Internet or mobile devices.

Currently, the basis for determining whether a supply of media sales is zero-rated or standard-rated depends on the place of circulation of the advertisement. If the media sales are circulated in Singapore, GST applies. If they are circulated abroad, then the supply of media sales is zero-rated.

However, this is no longer reflective of the state of media sales today. Online advertising has grown and is expected to account for an increasing share of advertising spending in future. Developments in digital technologies have changed the way that media sales are supplied and made it more difficult for suppliers of digital media sales to determine the place of circulation of the advertisement.

We, therefore, need to update and revise the GST treatment of media sales. Thus, with effect from 1 January 2022, the GST treatment for the supply of media sales will instead be based on where the person who contracts for the service, for example, a local or overseas headquarters or HQ, and the person who directly benefits from the service, for example, a subsidiary in Singapore, belong. For example, if the contractual customer of the media sales service belongs in Singapore, GST will be charged at the standard rate.

This amendment is provided for in clause 11 of the Bill.

Beyond these two sets of amendments, MOF regularly reviews the GST regime to clarify GST treatment and to improve GST administration. Let me now touch on the remaining two amendments in the Bill arising from this periodic review.

The first amendment arising from this periodic review updates the transitional rules for changes in GST treatment.

For supplies spanning the date of a change in GST treatment, the transitional rules under the GST Act and Regulations help taxpayers determine whether the old or new GST treatment applies. These rules were last amended in 2011.

Since then, there have been changes to our GST system. For instance, we introduced GST on imported B2B services and imported B2C digital services from 1 January 2020. We have reviewed the transitional rules and updated them in consultation with the industry. The proposed updated transitional rules will help prevent revenue risks, particularly for related-party transactions, provide tax certainty and ease the compliance burden of taxpayers whenever there is a change in GST treatment.

These proposed updated transitional rules will apply to changes, such as the proposed change of GST treatment for a supply of media sales, from 1 January 2022.

This amendment updates the transitional rules, such as to cover imported services, clarifies the application of elections under the transitional rules and makes various administrative changes that are necessary for a smooth transition of a new GST treatment. Clause 16 of the Bill provides for these amendments.

Finally, the second amendment arising from the periodic review of our GST system seeks to make miscellaneous changes to the Overseas Vendor Registration, or OVR, and Reverse Charge or RC regimes. These are regimes for enforcing GST on low-value goods imported via air or post and imported services. The miscellaneous changes seek to prevent revenue risks, provide tax certainty and ease the compliance burden.

These miscellaneous changes are found in clauses 4 to 6 and 25 of the Bill. Mdm Deputy Speaker, I beg to move.

Question proposed.

Mdm Deputy Speaker: Mr Saktiandi Supaat.

6.08 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): The COVID-19 pandemic has accelerated the process of digitalisation and forced many brick-and-mortar stores to take their businesses online. The learning curve has been a steep one and some are disheartened when they discover that after getting their store online, the challenges are far from over.

In the past two years, we had observed a significant increase in interest in online shopping. The borderless nature of the Internet would mean that Singaporeans also have easy access to foreign online marketplaces. Local businesses would now find themselves competing with online sellers from overseas, who are often more experienced and able to offer their goods and services at lower prices due to lower production costs and lack of taxes.

The Government’s move to apply GST to lower-value overseas imports via air is highly anticipated and welcomed by the local businesses that I have spoken with. The business owners believe reducing the cost differences between buying products locally and overseas would, to some extent, help to drive the consumer traffic inwards. But to achieve its intended purpose, the policies must be pragmatic and enforceable. With the sheer number of independent foreign merchants that offer direct shipping to Singapore, how will this policy be implemented?

Would GST be paid to the merchant or would consumers make the payment when their purchase reaches local customs? With this additional step of GST collection on an increased number of parcels, will this slow down the delivery process significantly? How could a possible decrease in delivery service standards be mitigated, while ensuring prompt collection of taxes?

Mdm Deputy Speaker, for digital services, the absence of customs intervention could mean a higher possibility of tax evasion. For example, if someone purchases a web design service from an independent designer overseas, is there any way for the authorities to track this transaction, besides self-declaration from the consumers? Would the Government work with international payment platforms, such as PayPal and Stripe, to better monitor the outflow of online payments from Singapore to overseas?

Besides administrative issues, the fact that this tax on lower-cost goods would affect lower-income households is another cause for concern. Some Singaporeans buy products from overseas that they cannot find locally. They will now have to contend with significantly higher costs as a result of increasing shipping costs and GST costs and not to mention the supply chain disruptions that we are facing now. For the lower-income households, every cent in savings counts. Being driven towards local options that are initially more expensive than its foreign counterpart may be a win for the local retailer, but, for the low-income consumer, it would feel like a loss.

A resident of mine recently learnt to shop online after receiving training from the Seniors Go Digital Programme. She has frequent backaches and was delighted to buy a brand of ointment from Indonesia, which is not available in any of the local supermarkets. She says it is much cheaper than her usual choice of ointment and more effective. With the new policy, she lamented that she may give up using it if it becomes too costly. So, I did tell her that she could try to suggest to some of our local supermarkets to bring in the product. As I understand, our local supermarkets and retailers have been heeding the Government’s call to diversify supplies. So, I would hope that our residents do not have to feel deprived of their favourite overseas products because it has become significantly costlier to purchase overseas.

Nonetheless, all this is happening in tandem with the scenario of a potential increase in local GST rates, which may take place by 2025. Singaporeans are still reeling from the economic impact of the pandemic. So, all these possible factors that may contribute to increased expenses may be very difficult to be taken as the normal scheme of things, even if the policy is necessary, and many countries have already implemented similar moves. A young resident tells me that he is feeling disheartened because he is still searching for a stable job after graduating, but costs of living are going up faster than he can find one.

The widespread popularity of e-commerce and foreign marketplaces in Singapore would mean that increasing GST not only impacts businesses, it also indirectly impacts Singaporeans’ costs of living. So, it is important that we address it as such. With that said, I understand that some major multinational online marketplaces, in fact, already incorporate GST into their goods and services and pay it directly to the Government. So, the number of consumers affected by the new policy may be less than expected. Can the Minister share data on how this policy may impact overall inflation and living costs in Singapore, even at the margin, especially so given the already inherent pressures and delays from supply chain disruption risks?

Mdm Deputy Speaker, this policy would, in essence, help to reduce loss of Government taxes and improve fairness for local businesses, but some clarity on the actual enforcement is necessary. Moreover, the Government should address concerns with regard to the impact of the policy on the cost of living in Singapore. Mdm Deputy Speaker, I support the Bill.

Mdm Deputy Speaker: Mr Louis Chua.

6.14 pm

Mr Chua Kheng Wee Louis (Sengkang): Mdm Deputy Speaker, it felt like yesterday when I last spoke on the GST (Amendment) Bill which was introduced in Parliament in November 2020. Back then, I shared my concerns about the loss of public revenues through GST leakages and had also asked about the status of introducing GST on imported goods, a point which was first raised in Budget 2018. I shared then that the OECD had, in March 2019, endorsed new rules and frameworks for the collection of taxes on the online sale of goods.

Meanwhile, COVID-19 has resulted in dual impacts on the retail sector in Singapore: firstly, an acceleration in the already rapid growth of the e-commerce market; and, secondly, the continued struggle of brick-and-mortar retailers amid an uneven playing field.

Fast forward to this year, these points continue to be relevant, with online sales now representing 16.4% of total retail sales, excluding motor vehicles, in August this year and with vacancy rates of retail space remaining elevated at 8% despite declining retail rents since 2015, given the challenges faced by the retail industry and made worse by multiple waves of COVID-19-related restrictions.

From the perspective of supporting our local SME retailers and to address a growing source of tax leakage due to overseas online retailers and to correct a key imbalance faced by tax-paying retailers in Singapore, I would like to state upfront that I am supportive of this Bill and the ensuing changes to ensure a level playing field for our local businesses to compete effectively.

A year ago, Finance Minister Lawrence Wong shared that he was very happy that I had brought up this point and supported it, because the MOF will certainly look for ways to raise more revenues and I believe the Minister will be equally happy with my discussion today. That being said, I do have a number of clarifications and broader issues to raise.

The first is that, since 1 January last year, GST is now payable on digital services provided by the GST-registered overseas service providers. In December 2019, IRAS shared that more than 100 overseas digital service providers have registered for GST under Singapore's Overseas Vendor Registration (OVR) regime and will be charging GST on their sales of digital services to Singapore consumers.

In November 2018, it was shared in this House that the Government expects additional revenue of about $90 million per year from this so-called "Netflix tax". Incidentally, Netflix has grown its subscriber base globally by about 1.5 times from 2018 to 2020, adding 37 million subscribers globally in 2020 alone. In Singapore, Disney+ was also launched in February this year, with many other over-the-top (OTT) services, Software as a Service (SaaS) and other forms of digital services witnessing prolific growth, due to the change in consumption patterns brought about by COVID-19.

I would like to ask the Minister: what was the assessed contributions from the tax on overseas digital services in the last financial year and how does it compare with initial estimates? More broadly, what has been MOF's initial assessment of the level of industry compliance, effectiveness of the administration of this tax and the number of cases of non-compliance by overseas vendors detected by IRAS so far?

Second, I understand that from 1 January 2023, GST will now apply to goods imported by air or post with a value of up to S$400, as well as imported non-digital services. In both of these cases, implementation is by way of extending the Overseas Vendor Registration (OVR) regime, similar to how GST was being extended to digital services. Under certain conditions, a local or overseas operator of electronic marketplaces may also be regarded as the supplier of such low-value goods or imported services.

With the likes of Shopee and Lazada being the e-commerce marketplaces with the largest estimated market share here in Singapore and with these companies themselves being headquartered in Singapore, the focus on these popular electronic marketplaces and digital platforms does provide for an effective way to ensure tax compliance and proper GST collection. However, now that we are venturing into the realm of low-value goods, a significantly larger plethora of overseas businesses are now supposed to be GST-registered.

But the reality is that not all of them may be aware of this requirement and, even if they do, could simply decide not to go through this hassle to collect GST on the Singapore Government's behalf. A quick search on the IRAS GST Registered Business Search throws up four records for Shopee, five records for Lazada, 20 for Amazon but none for Taobao, by far the most dominant marketplace in China, for example. There could also be many more direct overseas vendors that may or may not be registered as well.

How then can IRAS ensure that there is a robust enforcement framework in place, to ensure that all those who fall within the scope of the OVR regime do so? In the absence of financial records of companies incorporated overseas, much less the amount of revenues they derive from Singapore specifically, how does IRAS make the determination as to which companies it seeks to audit or investigate? And whether the overseas tax authorities will be able to provide as comprehensive an information set that IRAS seeks to retrieve?

The third point is in relation to one of tax efficiency and IRAS has been an efficient tax authority, a consistently low cost of tax collection at less than one cent per dollar of tax collected over the past years. I recognise that this new Bill is also about protecting Singapore's revenue base, not just merely about the additional GST receipts from the imposition of GST on these categories of goods and services.

But how much does the Government expect to collect in GST receipts from each of the low-value goods and imported non-digital services? And what is the cost of tax collection in this regard and the expected level of resources and costs to ensure a comprehensive compliance and enforcement framework?

The fourth point is more of an adjacent one and while Singaporeans may not be able to travel overseas as freely as we would like to right now, we do yearn for the skies one day. As and when we do travel overseas, it is to be expected that one might be doing some shopping and bring home some gifts and souvenirs. Today, travellers are granted GST import relief on new goods that are purchased overseas and brought into Singapore for their personal use, with the relief amount set at $500 with 48 hours spent away from Singapore. Can I ask the Minister if this GST relief is expected to stay intact even when GST on low-value goods is in place from 2023?

Before I end, Mdm Deputy Speaker, I would like to speak about a number of broader but pertinent issues relating to GST.

The first is on the spectre of a looming GST hike from 7% to 9% amid current macroeconomic uncertainties. The Workers' Party has been voicing our concerns on the GST hike since it was announced in 2018 and I take comfort that Member Mr Yip Hon Weng also shared his concern on the impending GST hike, where he pointed out in his speech on the Income Tax (Amendment) Bill last month, that this was originally announced before the pandemic. To which, Minister Lawrence Wong responded that, "The Government has announced that the GST rate increase will take place sometime during 2022 to 2025. This remains unchanged and we will continue to consider all factors, including our fiscal needs as well as the prevailing economic conditions in deciding on the timing of the GST rate increase."

While I agree with the need to roll out GST on low-value goods and imported non-digital services, the target implementation from 1 January 2023, coupled with the "sooner rather than later" hike in GST rates, could mean a double whammy for consumers.

Yet, Mdm Deputy Speaker, this impending GST hike is weighing on not just consumer confidence but also on businesses, especially the retailers hard-hit by COVID-19-related restrictions. The Singapore Tenants United for Fairness group, for example, in commenting on the latest month-long extension of COVID-19 restrictions, shared that the frontline business community is in deep despair and disrepair, and I quote, "To make matters worse, over the next 12 months, frontline businesses will be further hit by a likely increase of GST to 9%".

The other factor that is critical to consider is that of inflation. High inflation would simply mean lower real incomes and, at the moment, the debate globally, which has yet to be settled, is whether or not the current inflationary pressures in the market are seen to be transitory or permanent. What I do know, however, is that MAS is concerned enough about inflation to surprise the market with a tightening of monetary policy in October, that is, last month, given that external and domestic cost pressures are accumulating.

For Singaporeans already grappling with inflation and higher household expenditures, that additional two percentage points may be too much to bear. Yes, there will be the GST Assurance Package that delays and does not deny the impact of higher GST rates. Yes, I acknowledge that there will be an enhancement to the permanent GST Voucher scheme, which, at the moment, only applies to those earning less than $2,300 a month, amongst other conditions. These may be progressive elements involved but does the raising of GST make our tax system as a whole more progressive or more regressive? I believe the answer is clear. Do we really want higher GST to be the straw that breaks the camel's back?

As I shared in my speech last year, we need to explore other forms of revenue sources before looking to an eventual GST hike to raise tax revenues. The Significant Infrastructure Government Loan (SINGA) Bill was passed earlier this year. We are now casting our GST net further overseas. We are raising carbon tax rates. We are considering wealth taxes. We are in the midst of the OECD global tax reforms which could, as Finance Minister Lawrence Wong pointed out, give Singapore some additional revenue. And as I have shared during the Budget debates earlier this year, not all Government revenues are included in the official Budget.

Mdm Deputy Speaker, while I support this GST amendment Bill, I cannot support a GST hike which will be an unnecessary burden on our fellow Singaporeans, especially at this point in time when inflation is a serious concern and a full recovery of the employment market remains uncertain.

We must have the courage to make the difficult decisions that are necessary to uphold a culture of fiscal responsibility, even if it means walking back on a prior decision made under very different circumstances. It is not too late to change course and I strongly urge the Government to reconsider the necessity of a GST hike.

6.25 pm

Mr Sharael Taha (Pasir Ris-Punggol): Thank you, Mdm Deputy Speaker. Online sales in Singapore will hit an estimated US$8 billion this year. In a recent report by Bain & Company, e-commerce sales in Singapore are expected to grow to US$10 billion by the end of 2026. In the past 20 months, due to the confluence of factors, such as travel restrictions due to the pandemic, the growth of end mile-delivery platforms, lower-priced alternatives and our digitally well-connected population, online shopping has become the norm for us Singaporeans.

Since the onset of COVID-19, people have changed the way they shop and these changes are unlikely to reverse. A recent study in Singapore last year by Visa also found that three in four consumers in Singapore are shopping online more frequently because of the pandemic and one-third of Singaporeans also made an online purchase for the first time. The same survey also found that more than half of the respondents shopped less frequently in physical stores. This is likely due to the fact that we can purchase almost anything online now, from small, low-value items like cutleries, pots and pans, tools, mattresses and household items to expensive luxury items.

While most of us are enjoying the convenience of online shopping, a portion of our fellow Singaporeans, our small retail merchants, are struggling. In my recent discussion with our Merchants Association in Pasir Ris, our merchants, especially those that sell low-value household items, such as hardware, tools, curtains, small pieces of furniture and non-perishable products, shared that since the pandemic, their business has gone down by up to 40% to 50%.

Ms Ann Tan, a business owner at one of our neighborhood shops in Pasir Ris selling furniture, shared that her business has dropped by 50% and showed examples online where the overseas retailers were charging the same price for the exact same cupboards and shelves without GST. Bike shops also shared examples where small bicycles parts like grips, handlebars and gloves were all available online from overseas but not subjected to GST. The merchants also shared that some customers now are browsing the physical item in the shop, trying out the items, enquiring about the items but when it came to payment, some customers whip out their handphones and ask the shop owners for a lower price compared to what is available online.

The sale of these items used to be the bread-and-butter of our small retail merchants, but it is no longer. With people shopping less frequently in physical stores and the unfair advantage that overseas suppliers have by not paying GST, our neighbourhood businesses are struggling to make ends meet. Hence, our small retail merchants are hoping for a level playing field and the introduction of GST on low-value goods from overseas will be one of the enablers for that.

In addition to the introduction of GST on low-value goods from overseas, these small enterprises will need more assistance to remain competitive with the overseas online retailers. I am glad that we have programmes like IMDA's SMEs Go Digital which has a three-step checklist to go digital and the retail industry digital plan which provides a step-by-step guide on the digital solutions for local retail SMEs. These programmes assist our small retail merchants to start their digital initiatives. However, most of them, at least for the small retailers in Pasir Ris, have found it hard to sustain the digital activities as they are usually a one- or two-man operation and have no resources nor skillsets to continue with these activities.

Since the intent of introducing GST to low-value items from overseas is to level the playing field, can the Ministry consider the tax income from the activity to be used to provide more support for our neighbourhood retailers, such as hiring more consultants or trainers, to guide more retailers through their digital transformation and provide a support package for the small retailers to continue to sustain their digital activities? Mdm Deputy Speaker, in Malay, please.

(In Malay): [Please refer to Vernacular Speech.] The COVID-19 pandemic has changed our patterns of purchase drastically. While many of us enjoy the convenience of online shopping, other Singaporeans, such as neighbourhood shop owners, clothes sellers and small businesses, are facing challenges in running their business. Many of them have reported their business declining by 40% to 50% and one of the reasons was that prices of low-value items from overseas retailers are not subject to GST.

By imposing GST on low-value items from overseas retailers, we can help our small retail businesses by balancing the opportunities for all traders. We must also strive to continue helping our retail businesses to undergo digital transformation so that our small businesses can remain competitive in this increasingly challenging situation.

(In English): In conclusion, Mdm Deputy Speaker, the onset of COVID-19 has seen an irreversible shift in our patterns of purchase. While many of us enjoy the convenience of online shopping, a portion of our fellow Singaporeans, our small retail merchants, are struggling to make ends meet. The introduction of GST on low-value items will help to level the playing field for our small retail merchants as, previously, low-value items from overseas retailers are not subjected to GST.

These are truly challenging times for our neighbourhood small retailers and we have to do more to assist them on their digital transformation journey. Notwithstanding the proposal above, I support the amendments.

Mdm Deputy Speaker: Leader.

Debate resumed.

Mdm Deputy Speaker: Ms Yeo Wan Ling.

6.32 pm

Ms Yeo Wan Ling (Pasir Ris-Punggol): Mdm Deputy Speaker, the Goods and Services Tax (GST) has often been mentioned under the same breath as rising inequalities in Singapore. The same considerations that went into levelling the playing field for our marginalised families and residents would have gone into this new Bill, which also seeks to level the playing field for our local businesses when faced with the harsh inevitabilities of a globally open economy.

The imposition of GST on imports of low-value goods below $400 seeks to address this problem, in hopes that local consumers channel their purchases to local suppliers rather than those abroad.

However, we stumble upon tricky territory, as such developments necessarily produce winners and losers amongst our local businesses whether we like it or not, or whether we notice them or not.

The imposition of GST on the import of low-value goods is justified by a bid to support local businesses and we can infer by the pre-set $400 benchmark that the cost is intended to be passed on to consumers rather than businesses, reducing the attractiveness of low prices of suppliers abroad that were previously not subject to GST and, thereby, channeling demand locally.

The levelling of the playing field here is a welcomed move amongst our local retailers as they look towards the sustainable and necessary pivoting of their businesses in light of globalisation, e-commerce and changing consumer habits.

Mdm Deputy Speaker, although this will not affect all businesses, with the imposition of GST on imported low-value goods, we threaten to weed out, arguably, the most local of all our businesses, that is, our home-based businesses.

Nothing says “local” like a home-based business, fuelled by the passions of Singaporeans, built from scratch in our own piece of Singapore property and incubated at their inception not by institutional investors, but by friends, family, loved ones and even neighbours.

I would like to tell the story of a home-based business owner named Jia Jia who started her home bakery three to four years back. Jia Jia never planned to become a home baker. Out of her passion for baking, she started baking in her parents’ home and archived her creations on Instagram. This attracted significant interest from friends and family, who enquired whether they could commission her to bake cakes for their parties and also make dessert boxes. Her consumer base grew gradually through word of mouth because of the popularity of her bakes and this allowed her to quit her full-time job to focus her attention on her passion-turned-livelihood in baking. Today, she continues to run her bake sales on her Instagram and she has about 9,000 followers on her page.

Jia Jia’s home bakery can be seen as the epitome of local business – businesses with humble origins in Singapore, run by locals for locals. Many of us have a Jia Jia in our lives, or a Jia Jia hopeful, particularly with the tail winds for local home-based businesses brought about by COVID-19. I remember I myself even hosted a “Passions to Profit – Mumpreneur” Home Baking Class with my colleagues from the NTUC Learning Hub and over 300 Mumpreneurs have signed up for the classes since then.

However, because of the GST imposed on the import of low-value goods, local businesses like Jia Jia’s might face a significant dent in their profit margins, especially if they source mainly from overseas. We may think that home-based businesses are supported because they are local, when, in fact, they are marginalised because they are small.

Not only is it unkind to expect home businesses to just die out because they are not scalable, but it is also presumptuous to think that home business owners necessarily intend on moving their businesses out of their homes. The home business owners I have spoken to believe they are "here to stay", insistent that their home-run businesses are what allows them to be personally involved in their passions.

Mdm Deputy Speaker, not all skilled artisans necessarily want to become factory owners because their passion also happens to be their job. We cannot legislate taxation in a way that potentially invalidates the business models of home businesses if we want Singapore to really be where passion is made possible.

Due to their lack of recognition in the formal economy, these businesses do not receive subsidies for equipment and, sometimes, have restrictions on who they can even do business with, with or without a licence, leading them to struggle to even compete with some of their larger SME counterparts, much less overseas competitors. They keep their prices affordable not just to drive up profit margins, but because they thrive on strong personal relationships with the very people they serve. Absorb the significant dent on profit margins passed on to them by GST and their businesses are in danger. Pass it to their customers and they would feel that they have done them a disservice.

Further, although it is desired that those affected by the GST on low-value imported goods would channel demand to the local economy, in the case of home business owners, this may not be so. Once again, it must be reiterated that it has always been passion over prices. Our home business owners take a lot of pride in their work and put their heart and soul into their craft. This is one of the biggest draws of supporting home businesses. You know that your product has passed through the watchful eye of a personally invested business owner.

And this is why the home business owners I have spoken to maintain that they would never compromise on quality. Sometimes, this commitment to quality requires imports, such as for quality ingredients or materials that simply cannot be found in Singapore. This commitment to quality could pinch their profit margins should they continue to import their ingredients.

Therefore, Mdm Deputy Speaker, when debating on the tax on importing low-value goods, the question is not whether or not we should be #supportlocal. The question is whether, by doing this, we are really supporting local. In our bid to level the playing field, have we inadvertently made the hill a little bit steeper for some businesses we had intended to support? Would we be able to then further level the playing field through other support mechanisms for our home-based businesses, financial or otherwise, because our home-based businesses are often left unnoticed?

Further, when debating the imposition of GST on imported goods, we must inspect the substantive benefits accrued to those we seek to uplift. At the peak of the restrictions last year, many Singaporeans were really quite dismayed to see the haunting photos of an empty Orchard Road and the impact on retailers in Singapore since then cannot be understated.

With the rise of online shopping and e-commerce, some predict that online competition could spell the gradual debilitation of retail in Singapore. And this is a ghastly prediction the imposition of GST on low-value goods seeks to reverse.

While this is all done with good intentions, I believe we should not merely aim to prop up the retail sector in Singapore, but usher a new golden resurgence. Just as Times Square, Ginza, Tsim Sha Tsui, Dongdaemun crown the vibrancy of their world-class cities, it is time that Singapore polishes our crown and restores the vibrancy of our retail sector. Merely levelling the playing field with price adjustments will serve us short term, but we cannot settle for stop-gap measures for what has once been the crowning jewel of urban life in Singapore, which is our retail sector.

Mdm Deputy Speaker, I propose that these measures pertaining to price must be complemented with a wider ecosystem change that not only merely props up retail businesses but elevates the retail experience in Singapore. This brings me to the case of Pazzion, best known as a brand for female footwear in Singapore.

Pazzion opened its first brick-and-mortar store in Marina Square in 2005 and boasts its 10th local outlet as of 2019, in the meantime building its presence in Asia Pacific. What is interesting about Pazzion, however, is that, in recent years, it has broken out of its mould as a fashion business and opened a café over at Jewel, committing to becoming a lifestyle brand that sells experiences beyond goods. Any shop, online or brick-and-mortar, can peddle goods, but I would say brick-and-mortar shops are, at the moment, much better placed to deliver an experience.

It is my hope that retailers and mall owners in Singapore can partner up to deliver retail experiences beyond the delivery of retail goods, rejuvenating the retail experiences for Singapore and her visitors. This is how we will truly be able to make the case for retail in Singapore to return to its crowning glory. Online shopping makes purchases possible, but, here in Singapore, passion is made possible.

With this, I call for the distinction to be made for microbusinesses, especially our home-based businesses, when it comes to GST changes and other provisions for growth support. Further, I call on Government agencies to think bigger in revitalising Singaporean retail, going beyond propping up businesses in the short term, to architect a real retail environment for the ages. These concerns notwithstanding, I support the Bill.

Mdm Deputy Speaker: Mr Louis Ng.

6.43 pm

Mr Louis Ng Kok Kwang (Nee Soon): Madam, this Bill will update our GST regime. Significantly, this Bill will extend GST to imported low-value goods. This ensures a level playing field for local suppliers and overseas suppliers. Additionally, the Bill will also update the GST treatment for media sales to more closely reflect the reality of how services are advertised and consumed.

I thank MOF for consistently consulting the public on its Bills, including this Bill. I also commend the Ministry’s diligence in always providing summaries and its responses to key feedback received in its consultations.

I have two points of clarification to make on this Bill.

My first point is on the GST treatment for the supply of media sales. The amendments to section 21 mean that the GST treatment for supplies of media sales depends on where the customer and the direct beneficiary of the service belongs, rather than where the advertisement is circulated.

IRAS’ e-Tax Guide has provided some guidance on how to identify the “direct beneficiary” of media sales. In particular, the e-Tax Guide provides that the contractual client will, generally, be regarded as the sole direct beneficiary where two conditions are satisfied.

First, the service agreement does not require the services to be provided to another person. Second, the supplier liaises only with the contractual client and is accountable only to the contractual client.

Can the Minister clarify if both conditions must be satisfied in order for the contractual client to be deemed the sole direct beneficiary? Or is it sufficient that either one of the conditions is satisfied?

The e-Tax Guide also provides that when the two conditions are satisfied, the supplier does not need to look beyond the contractual client in determining the correct GST treatment. In the event that the two conditions are not satisfied, can the Minister share what other factors a supplier should take into account to determine who the “direct beneficiary” of the service is?

In particular, where multiple layers of contracts exist between a service provider and the beneficiary of a service, where should a supplier draw the line in determining its “direct beneficiary”?

My second point is on the use of best available information to determine whether goods are distantly taxable. The new section 14(1B) provides that a recipient may rely on the best available information to determine whether goods are distantly taxable if the recipient is unable to verify the location of the goods at the point of sale of the goods or how the goods will be transported to a place in the customs territory.

In the public consultation conducted on the Bill, MOF had declined to accept a suggestion that the Bill prescribe information that businesses should rely on to determine if a supply of goods are distantly taxable goods that fall within the scope of GST. MOF declined to prescribe the information to reduce compliance burden and has stated that IRAS will provide examples in its e-Tax Guide.

While the examples will be useful, what will also be important in the event of a dispute is which party bears the burden of proof. Can the Minister elaborate where the burden of proof lies and how the burden shifts in determining whether there was compliance with the tax treatment of distantly taxable goods? For instance, does the burden of proof shift to the Comptroller of Income Tax once the recipient is able to show a preliminary case that they relied on the best available information? Is the burden of proof then on the Comptroller to show that the recipient, in fact, had access to and should have relied on other information?

This clarification is important because the term “best available information” is so general that it might pose enforcement issues. Madam, notwithstanding these clarifications, I stand in support of the Bill.

6.47 pm

Mr Yip Hon Weng (Yio Chu Kang): Mdm Deputy Speaker, cross-border spending constitutes a key component of our e-commerce market. This is projected to reach $8 billion in 2025. As such, it is important to ensure that our tax policies are reviewed and revised accordingly. The decision to impose taxes on all imports by air or post will help to level the playing field for our local retailers. It will also help to supplement the increased Government spending in the upcoming years. I would like to share my thoughts on four issues.

First, Mdm Deputy Speaker, we need to provide more support for lower-income households. I am concerned that imposing GST on all incoming overseas goods will lead to an increased burden on these residents. Has the Government done research or sought feedback on how foreign online retailers intend to handle this tax increase? Will it be absorbed? If not, how much of it will be passed on to the consumers? As this new Bill mainly impacts individual buyers, the additional tax will be a heavier burden for our lower- to middle-income families. This will be compounded by the impact of the GST hike that is likely to be implemented in the next few years.

Are there further measures on top of the existing Assurance Package and GST vouchers to mitigate the impact on them? Or can the quantum of these initiatives be increased to help families, given this new change? Will it be possible to utilise the Assurance Package or GST vouchers to cover online purchases, too?

Second, Mdm Deputy Speaker, we need to continue to encourage our local retailers to compete globally. Compared to many of their overseas competitors, which have large economies of scale, SMEs are disadvantaged, as they often have to pay high rental and labour costs. If the savings on purchasing foreign imports are reduced, this could diminish the attraction of overseas purchases, thereby encouraging more Singaporeans to support local businesses.

Nevertheless, why do Singaporeans shop from overseas sites? According to a survey, eight in 10 local respondents shared that the main reason was the overall lower cost of procuring goods and services from foreign sites. The second reason was the wider variety of international brands’ products and the lack of availability from local retailers. If Singaporeans cannot find their preferred brand, services or shopping experience locally, the imposition of the GST will do little to shift their buying behaviour towards local businesses.

As such, local businesses must not be lulled into a false sense of security, thinking that they can rest on their laurels and become complacent with the perceived decreased competition from foreign markets. They must continue to innovate, use business analytics to understand their customers’ needs, establish global partnerships and bring in products that are in high demand. The Government must continue to encourage and support our local businesses to compete globally by embarking on digitalisation and by getting onto these online retail platforms. In this connection, perhaps the additional tax revenue from the imposition of GST can be funnelled to support the globalisation efforts of local businesses.

Mdm Deputy Speaker, my third point is on the need to tackle implementation challenges that come with the new taxation policies. With more companies and individuals obliged to comply with the new GST regime, compliance costs will, therefore, increase. What is the estimated number of low-value transactions in a year?

There may be a disproportionately large number of low- versus high-value transactions. As such, the Government may require disproportionately more resources to ensure that individuals comply with the new GST regulations. How will the Government ensure that there are adequate resources to enforce the new policies in an efficient manner? Will more personnel be hired to handle the additional workload at IRAS? In light of the additional cost to ensure compliance, has any study been done to weigh up the cost of compliance, including prosecution of GST evasion, and the potential tax revenue that may be generated?

With the new law, individuals are subjected to taxation or reverse charge. Is IRAS ready for the potential increase in enforcement action when this comes into play? As for businesses, local GST is imposed on all GST-registered companies in Singapore. They collect GST from the customers or absorb it. And the collective amount is paid to the Government. Will foreign retailers who wish to sell to the Singapore market be GST-registered? How will the Government engage these foreign businesses and provide them with the relevant legislative and administrative material, so that they have sufficient time to understand and apply the new practices?

Perhaps this ties in with my above point on compliance. There are foreign companies with a large online shopping presence in Singapore, such as Amazon, Taobao and Lazada. These companies allow smaller third-party companies to sell on their platform. Have the relevant stakeholders engaged these companies to collaboratively resolve the issue of compliance?

What if the foreign retailer withholds GST payment? How will the Government deal with overseas companies who fail to comply with our GST regulations? In the case of New Zealand, their Inland Revenue would monitor for non-complying retailers. Under international agreements, it can request counterparts in some countries to collect tax on its behalf or assess and pursue unpaid tax through a retailer’s national courts. Is this an option that we would pursue? Or will the burden then irrevocably fall on the customer as a reverse charge?

In addition, similar to Member Saktiandi Supaat's earlier point, how will consumers be made aware about whether their payment at the point of purchase already includes GST? And will they be told that they have to pay additional GST to collect their parcel in Singapore? SingPost has recently switched to an online cashless system for collecting GST on packages valued above $400. The new policy would see a significant rise in the number of packages due for GST payment. This could also provide opportunities for scams. Unscrupulous merchants may leverage on this to cheat consumers into paying them a sum to retrieve their purchase. Parcel clearance scams, where callers masquerade as customs officers asking for payment to retrieve a parcel, have not been uncommon even before this. It is thus imperative to educate consumers on when and where GST is to be paid and the official payment platforms to do so. I would expect that SingPost or other online delivery platforms would be well-equipped by then to address more queries concerning GST payments on their parcels.

How will the Government keep track of all parcels coming into Singapore and their GST payment status? Some packages may contain purchases from small businesses, or gifts from family and friends. Some may not come with invoices.

Second-hand items like those from eBay, may have had their GST paid when the items were first bought. Are these second-hand items still subjected to GST taxation a second time? It is also not unheard of that some foreign retailers would allow customers to under-declare the value of their purchases to evade taxes, or to reduce the amount of tax payment due. How will the Government police these?

Mdm Deputy Speaker, my last point is on the implementation for media sales. Many firms now employ gig workers from overseas or outsource to provide remote services like designing programmes or media pieces.

Such services are difficult to apply a quantum to and are easy to evade. As such, many of these services could be under-declared or not declared at all, to avoid GST. In addition, many of these small firms may neither have a turnover of $1 million nor are GST-registered. Will these firms – which may be acting as an underlying supplier or re-deliverer – be liable for reverse charge, if the services provided are below $400? If reverse charge still applies to these firms, can they still pass these additional costs to the consumers?

In conclusion, Mdm Deputy Speaker, taxing all imports is necessary as e-commerce grows globally. Nevertheless, the Government should provide some support to lower-income groups who are impacted by such taxes.

In Yio Chu Kang, I recall meeting Mdm K during a house visit, who was a homemaker looking after three kids. Her husband, who is the sole breadwinner, is a delivery driver and does not earn a lot. Mdm K supplements her family income by importing children’s story books, toiletries and cosmetics from China and Korea, which are either cheaper or not available in Singapore. These items do not cost a lot. And Mdm K brings in items in small amounts. I, therefore, urge the Government to provide some support to the lower-income groups, micro businesses and entrepreneurs like Mdm K and her family who may be significantly affected by the changes, if the tax is passed to them.

This policy is also an opportunity for our local businesses to innovate, in the face of a globalised world. If local businesses are unable to improve their offerings and customer experience, they can expect our residents to continue shopping overseas. Our competition is the world. If we do not innovate, we will stagnate.

Finally, implementation is policy. We must ensure that the relevant agencies are well-equipped to handle the additional workload and customer enquiries. The policies must be well-enforced, with adequate information made accessible to the public, lest they become loopholes to be exploited for dishonesty and fraud. I support the Bill.

6.58 pm

Mr Don Wee (Chua Chu Kang): Mdm Deputy Speaker, I declare that I am a Council Member of the Institute of Singapore Chartered Accountants but I do not advise clients on tax matters.

The Inland Revenue Authority of Singapore (IRAS) has to factor in many considerations and strike a delicate balance as it seeks to fulfil its mission. For example, there is the trade-off between protecting revenue and minimising the distortions of taxes on market competition. In addition, it has to find ways to optimise the efficiency of tax administration and avoid unnecessary enforcement burden.

One of the concerns of levying GST on lower-value items is whether the resources required to enforce the collection are worth the effort. But I can see why the Ministry is implementing GST on this category of goods. There is no better time to start than this current moment and e-commerce has become the hottest vertical in Singapore's tech sector during this pandemic.

To facilitate tax compliance for foreign online suppliers, IRAS should implement a simplified registration and compliance regime. In other countries, e-commerce platforms collect and remit the tax on the Government’s behalf, as they take on the role of a "store" with an offering of different supplies. In many cases, it acts as the sole point of contact with the end consumers.

Under our current Overseas Vendor Registration regime, I understand that foreign suppliers and e-marketplace operators which make significant sales of digital services to Singapore’s consumers are required to register with IRAS for GST. With this new legislation, the Overseas Vendor Registration regime will be expanded.

I would like to ask what if the foreign suppliers are non-compliant for the import of their goods into Singapore? Will the Singapore-based purchasers, like the consumers, be asked to pay for the GST? Can IRAS work with Electronic Distribution Platforms (EDPs), like Aliexpress and eBay, via a joint and several liability (JSL) notice mechanism to notify the foreign suppliers, as we are unable to regulate these suppliers effectively, to help us with the tax collection?

IRAS should concentrate its efforts in the fight against GST fraud and ensuring the effective taxation of cross-border online sales to raise additional revenue and strengthen the functioning of our tax systems. I understand the need to grow our tax base in order to fund other expenditures. For example, Australia recorded total revenues of over AUD 1 billion of GST collected in the first two years of operating its GST regime for online sales of services and digital products and in the first year of its implementation for online sales of goods. Mdm Deputy Speaker, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] One of the justifications for levying of GST on low-value imported goods sold online is to ensure fair competition for our domestic retailers against online retail platforms. Singaporean retailers are required to charge GST on their sales, but online retailers are not. While this measure may help some of our local stores narrow the price gap between them and online retailers, our consumers will have to pay higher prices.

Due to the pandemic and the Government's persuasion, many Singaporeans have changed their shopping habits. Cautious consumers should not be punished for remaining wary of crowded shopping centres and stores, especially as COVID-19 cases and hospitalisations are on the rise again. On the other hand, local retailers who have supplemented their business with online sales may face the double whammy of low footfall plus a new tax on their online sales of imported items.

(In English): Mdm Deputy Speaker, I have some questions for the Minister. Is this new approach meant to minimise the entry of high numbers of new gig economy operators, like the SMEs, into the GST system, perhaps with limited compliance capacity and knowledge of their tax obligations? I am concerned that the new economy operators, especially the micro-businesses and SMEs, may often have limited GST knowledge and capacity to comply while their activities may involve considerable GST revenues and create risks of competitive distortion that may be significant at an aggregated level.

Does IRAS expect the revenue impact of this approach to be significant when activity shifts from a limited number of established and largely GST-compliant conventional operators to a large number of gig economy operators that may remain outside the scope of GST?

Will bringing in these new gig economy operators into the GST net create undue pressure on tax administration and compliance challenges for the operators? How will IRAS use technology to facilitate GST administration and compliance? Are there third-party reporting obligations, taxpayer education and other activities to raise awareness?

How does IRAS enforce and collect the right amount of tax? The purchases that many Singaporeans purchase online are less than $400. So, many Singaporeans will be affected and feel that they are forced to pay the cost of COVID-19 even though the change will only happen in 2023.

Online sellers have found ways to evade paying taxes: posting goods without declaring, offering services on online social media, boosting cash transactions and running multiple sales websites. How will IRAS minimise such non-compliance?

Can a portion of tax revenue collected from these imported purchases be earmarked to strengthen the resilience of our retail sector in the event it encounters another major economic downturn like now?

I look forward to the Minister's response and would like to conclude with my support for the Bill.

Mdm Deputy Speaker: Minister Indranee Rajah.

7.04 pm

Ms Indranee Rajah: Mdm Deputy Speaker, I thank all the Members of Parliament who have spoken for their support of the Bill. The questions raised by the Members fall broadly into four categories.

First, how IRAS will implement GST on low-value goods imported via air or post and business-to-consumer, or B2C, imported non-digital services. Second, how IRAS will enforce collection and ensure compliance. Third, specific queries on the updated GST treatment for a supply of media sales. Fourth, feedback concerning cost of living and the GST Voucher Scheme.

Mr Yip Hon Weng, Mr Don Wee and Mr Louis Ng asked how GST on low-value goods imported via air or post and B2C imported non-digital services will be implemented. GST on low-value goods imported via air or post and B2C imported non-digital services will be implemented by widening the scope of our existing Overseas Vendor Registration, or OVR, and Reverse Charge, or RC regimes.

These regimes are not new and have been successfully implemented from 1 January 2020 to tax business-to-business, or B2B, imported services and B2C imported digital services.

Under the OVR regime, overseas vendors, such as overseas suppliers, electronic marketplace operators and re-deliverers that make significant B2C supplies of imported services and/or low-value goods imported by air or post to non-GST registered customers in Singapore will register with IRAS if they are not already registered. They will collect GST from their customers on such supplies and then hand the collected GST over to IRAS. Non-GST registered customers in Singapore include individuals like many of us here. This approach ensures a level playing field in terms of GST treatment, whether we buy such services or goods from local suppliers or overseas vendors

Mr Don Wee asked whether a simplified registration and compliance regime will be available for overseas vendors. Our current regime is not onerous. Overseas vendors can already choose to register under a simplified pay-only mechanism. The simplified pay-only mechanism allows overseas vendors to enjoy simplified GST reporting and documentation requirements.

Under the RC regime, which is only applicable to B2B transactions, local GST-registered entities will account for GST to IRAS when they import low-value goods via air or post or buy B2B services from overseas suppliers. Our RC regime does not affect most GST-registered entities in Singapore. This is how we keep the tax compliance burden low. This is because they are fully taxable persons entitled to a full refund on the GST incurred on their purchases and even their account for GST on the low-value goods imported by air or post or on imported services, they will still get a refund of this same amount.

Only a small minority of GST-registered entities here are subject to RC – these make non-taxable supplies, such as exempt supplies or non-business supplies, and cannot get a full refund of GST incurred on their purchases. This minority of GST-registered entities that are subject to RC include financial institutions and residential property developers.

For this minority of GST-registered entities that are subject to RC, they are required to account for GST on the imported services, including services procured from overseas gig workers, regardless of the value of the services.

Businesses with annual turnover of less than $1 million and not importing services exceeding $1 million are not required to register for GST and are not required to apply RC on their imported services. This is similar to how we do not require local businesses with less than $1 million annual turnover to register for GST.

Mr Yip Hon Weng asked how, under OVR, consumers will know if their payment at the point of purchase already includes GST and how Singapore Customs will know if GST has already been paid on a package. When consumers check out their purchases, GST-registered overseas vendors will charge and collect GST on the low-value goods at the point of purchase when the order is confirmed. This is similar to how, since 1 January 2020, GST is collected on imported B2C digital services.

Where GST has been charged and collected by the overseas vendor on the low-value goods, the overseas vendor will include the relevant information on the GST collected in the commercial document which is passed through the logistics chain. Import GST will not be payable at the border when this information is furnished to Singapore Customs. For example, for goods delivered via air couriers, the GST registration number of the overseas vendor is included in the summary list of parcels to be imported or in the permit declared to Singapore Customs.

Mr Louis Ng asked how GST-registered entities that are subject to RC can use best available information to determine if a purchase is subject to RC. As I have explained earlier, only a small minority of GST-registered entities here are subject to RC. When these entities buy low-value goods, RC will apply only if the goods are imported by air or post into Singapore. Singapore Customs already collects GST for all goods imported via land and sea into Singapore.

GST-registered entities that are subject to RC will usually know from its contract with a supplier whether the low-value goods it buys is located outside Singapore at the point of sale and whether the goods will be imported via air or post. However, there may be occasions in which the GST-registered entity only knows this information upon receipt of the goods.

Allowing GST-registered entities that are subject to RC to use the best available information to determine whether the RC applies is, therefore, meant to ease compliance by such entities.

Apart from information available at the time of purchase of the goods, the entities can use information at the point of goods receipt or other information collected by their business systems and processes to determine the location of goods and mode of shipment into Singapore. One example of such available information is the import and shipping documents that accompany the goods.

As it would be difficult to envisage all the types of available information that may be used, we will not provide a prescriptive list of information that GST-registered entities subject to RC can rely on. Instead, IRAS will provide examples on the type of documents or information in its e-Tax Guide. Entities subject to RC can approach IRAS for clarification if they wish to use other available information.

Mr Yip Hon Weng, Mr Saktiandi Supaat and Mr Don Wee, asked how we will engage overseas vendors and ensure that they comply with the new GST regime. First, since 1 January 2020, the regime is already in place for overseas vendors that sell B2C digital services to local consumers. This has helped IRAS gain experience in administering and enforcing the regime. The rules of our OVR regime are consistent with those of other jurisdictions. This makes it easy for overseas vendors to comply and also provides certainty for the industry.

Many of these overseas vendors are familiar with similar GST or VAT obligations in other jurisdictions. We are not the first jurisdiction to implement GST on low-value goods imported via air or post, or on imported services. For instance, Australia, the European Union, New Zealand, Norway, Switzerland and the United Kingdom have extended their GST or VAT regimes to cover low-value goods.

Our experience with OVR thus far since 1 January 2020 and the experience of other jurisdictions with OVR show that these multinational businesses do comply with GST or VAT obligations of the jurisdictions they make supplies to.

IRAS will make use of various information sources to identify and engage overseas vendors that should be GST-registered and verify their GST reporting after GST-registration. In the event of non-compliance, the existing penalty and enforcement regime under the GST Act will apply. IRAS is empowered to raise additional tax assessments, apply penalties and recover the outstanding tax payable directly or through the appointment of agents. Provisions in bilateral tax agreements will also allow IRAS to obtain information on overseas vendors from other tax jurisdictions.

IRAS has been actively engaging the industry, including overseas vendors, on the implementation details for the OVR and RC regimes. These include consultation on IRAS' draft e-Tax Guides and the proposed legislation. IRAS is also conducting outreach activities for potential GST registrants, including participating in workshops in various international fora and holding webinars, to educate overseas vendors on the new GST rules.

I will now proceed to address questions regarding the updated GST treatment for suppliers of media sales.

To recap, the GST treatment for a supplier of media sales will be revised from 1 January 2022, to be based on where the person who contracts for the service, for example, a local or overseas headquarters, and the person who directly benefits from the service, for example, a subsidiary in Singapore, belong. Currently, the GST treatment depends on where the advertisement was circulated. With the advent of the digital economy, including online advertisements, our GST treatment needs to be updated.

IRAS has provided guidance in its e-Tax guide to state that the person who contracts for the service, or the contractual client, will, generally, be regarded as the only person who directly benefits from the service, where two conditions are satisfied. The first condition is that the service agreement does not require the services to be provided to another person. The second condition is that the supplier of the service liaises only with the contractual client and is accountable only to the contractual client.

Mr Louis Ng asked whether both of these conditions must be satisfied, in order for the contractual client to be deemed the sole direct beneficiary and how to determine the GST treatment of the supply of media sales in the event that both conditions are not satisfied. To clarify, both conditions must be satisfied for the contractual client to be regarded as the sole direct beneficiary. IRAS has provided examples in its e-Tax guide to illustrate this.

Where the two conditions are not satisfied, the determination of the direct beneficiary would be dependent on the facts of the case. As a general rule, the supplier should consider the party other than the contractual client stated in the contract that he is required to provide a service to and to whom he is accountable for his service deliverables. For example, if the media sales supplier's contract is with an overseas headquarters, but the contract requires the media sales to be, first, provided to a subsidiary in Singapore, or second, the media sales supplier is accountable to the subsidiary in Singapore for his service deliverables, then the subsidiary in Singapore is the direct beneficiary of the service.

In both instances, the supplier will have contact with the subsidiary in Singapore, the actual recipient of his service. Therefore, regardless of the presence of multiple layers of contracts, the supplier will know the direct beneficiary of his supply of service. IRAS will include more examples in its e-Tax guide to illustrate the situation where both of these conditions are not satisfied.

With the extension of GST to low-value goods imported via air or post and to imported B2C non-digital services from 1 January 2023 as announced in Budget 2021, this means that GST will apply to goods and services imported into Singapore. This, in turn, levels the playing field for our local businesses, as overseas suppliers of goods and services will be subject to the same GST treatment as local suppliers. This change also helps to defend our GST revenue base from being eroded as the digital economy grows and more people shop online.

Mr Sharael Taha asked whether the tax revenue from this measure could be used to provide more support to small retailers and help with their digital transformation. The revenue collected will form part of our total fiscal resources. We have set aside $24 billion over the next three years, as announced in Budget 2021, to enable firms and workers to transform and emerge stronger from the pandemic, of which a key focus is to support SMEs in their digitial adoption. There are schemes already in place, such as SMEs Go Digital, Heartlands Go Digital and SME centres, to help small retailers through ground support and consultancy services with their digital transformation.

Ms Yeo Wan Ling called for more support for microbusinesses and wider changes to support our retail ecosystem. We have implemented several schemes throughout 2020 and 2021 to help SMEs in the retail sector. We are also refreshing the Retail Industry Transformation map, or ITM, which lays out a longer-term vision for the industry as part of a broader refresh of the 23 ITMs, given disruptions brought about by the COVID-19 pandemic.

Mr Yip Hon Weng and Mr Saktiandi Supaat asked how this measure would impact overall inflation and living costs in Singapore, particularly for the lower- and middle-income.

The bulk of individual consumption, such as food, utilities, transport, education and health care, will not be affected by the change. These goods and services are, typically, bought from local suppliers rather than from overseas suppliers and thus are not affected by the extension of GST to low-value goods imported via air or post and B2C imported non-digital services.

Mr Yip Hon Weng also asked whether additional assistance will be provided on top of the Assurance Package and GST Voucher scheme. We have said that the Government will continue to absorb GST on publicly subsidised healthcare and education. To support lower-income Singaporeans, we already have other permanent schemes, such as Workfare Income Supplement (WIS), Silver Support and ComCare.

As part of our annual Budget, we have also provided additional support, such as Service and Conservancy Charge (S&CC) rebates and top-ups to Child Development and Edusave accounts. The Government remains committed to supporting Singaporeans, with more help given to the lower-income.

Let me now address the queries raised by Mr Louis Chua. He had asked for the GST collection from our existing OVR and RC regimes. And the answer to that is that it is about $250 million a year.

He had also asked about the number of cases of non-compliant overseas vendors under the existing OVR regime detected by IRAS so far. IRAS has not detected any cases so far and the overseas vendors are generally compliant.

He had asked how much does the Government expect to collect from each of the new measures. The measures would yield about $130 million a year.

And his final question was whether there will be any changes to GST import relief for those coming back from overseas. That will not change.

I think Mr Louis Chua then concluded by a call to review whether or not it is necessary to raise the GST rate. Let me say this.

First of all, today is not really the time to have a debate on whether or not we should raise GST as a whole, because today's Bill is focused on a very specific aspect, which is low-value goods. However, I want to just make a few general remarks, given that Mr Louis Chua has also made a call or some remarks on raising of the GST rate, which is really this.

You have to consider our revenue and you have to consider our expenditure situation. And I think Members of the House know this already. In terms of our revenue, taxes and fees are only 80% of our total revenue. We are already relying on the NIRC for 20%. That is one-fifth. Our revenue is not coming from taxes alone. And the budgetary surpluses of the entire last two decades have been called upon because of COVID-19. And because of COVID-19, because of the pandemic, we have had to dig into our reserves – not just NIRC, but the actual reserves. And the draw on our past reserves amounted to about $53 billion. That is our revenue situation – we are digging into the savings.

On the other hand, our expenditure, if you just look at the horizon – and I outlined this in my speech yesterday on the Adjournment Motion – we have very large expenditure items looming on the horizon. Firstly, ageing population and all the healthcare that comes with that; secondly, climate change and the need to have a sustainable future for Singaporeans; and, thirdly, renewing our social compact, bridging inequality, doing more for the vulnerable, helping those who are in need.

So, what do we have? We have a situation where our fiscal situation is already tight, because we are digging into our savings and our reserves. We have got impending challenges which require us to spend more and you also have the Workers' Party, on top of that, asking us to spend even more than that.

The money must come from somewhere.

The Workers' Party has attempted to put forward some suggestions. So, they have suggested tax increases; they support the tax change today. But you must remember that the kind of money that is raised from the GST change in today's Bill is in the millions. But if there is a GST increase of two percentage points, the amount of revenue raised per year is about $3 billion. You are comparing millions with billions. And the kind of expenditure that is required is billions.

The other suggestion that the Workers' Party has put forward is on land sales and to treat land sales as revenue. Actually, I have explained this before. But in a nutshell, what they are really saying is, if you have land, if you have property, today, it is in the physical form; when you sell it, you are converting it to cash, to another form – and the suggestion is to treat that as revenue. We do not treat it as revenue because you have not become richer by selling it. You have just converted it from a physical form to a cash form. It is just not prudent in terms of the way one should run a fiscal system.

So, I would just simply urge the Workers' Party to consider this: our fiscal constraints, the need to spend more and that the money must come from somewhere.

I had also, yesterday, outlined why the Singapore system – the taxation system and the fiscal system – is progressive and fair. It is built on principles that everybody contributes something, but those who have more contribute more. In fact, in some cases, a lot more. And what we do is we redistribute it to those who have less.

In terms of GST, as I mentioned yesterday, over 60% of the net GST from households and individuals is estimated to be from the higher-income and from the foreigners who live and work in Singapore and from tourists. Tourism is down now, but when you look at the mid- and longer-term projections, that 60% still remains the same. So, our GST system is a good example of how we do this redistribution and never forget that this Government will do what is necessary to support our people. When you consider the pandemic, we had five Budgets. Every time the MTF had to put in place measures that affect businesses, we put in place support. So, you cannot look at just one single item and say, "Oh, this, by itself, please change, it is very onerous". You do have to look at the bigger picture. And you cannot just look at a very narrow tunnel-vision thing.

The other takeaway is really that this Government will always make sure that whoever is in need, in genuine need, will have support. And the only way you can do that is to have diverse revenue sources which are sustainable; and for recurrent expenditure, to make sure that you have recurrent revenue.

That is all I plan to say about GST at this stage and I hope that this is something that the Workers' Party will reflect on.

Mdm Deputy Speaker, let me just conclude by saying that MOF will continue to review our tax regime regularly to ensure its relevance and its effectiveness in the digital economy. And 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. – [Ms Indranee Rajah].

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