Singapore will be imposing the goods and services tax (GST) on imported digital services from 2020, as announced by Finance Minister Heng Swee Keat on Monday (19 February).
Singapore introduced a GST in 1994, with a 3 percent rate.
Are Malaysians still whining about the 6% Goods and Services Tax (GST) these days?
Singapore raised the stamp duty on residential property purchases and flagged future tax increases as it prepared to meet increasing healthcare, infrastructure and security and education needs over the next decade.
He said the government needed the GST increase, as there was still a gap even after it had explored various options to manage its future expenditures, such as via prudent spending, saving and borrowing for infrastructure.
The minister estimated that a two percentage point increase in GST will provide a revenue of nearly 0.7 percent of GDP per year.
He expects the adjustment to be made earlier, rather than later, in the stated period.
"The carbon tax will encourage businesses to take measures to reduce carbon emissions", he said, adding that companies that do so will be more competitive, as more countries impose tighter limits on their carbon emissions and global agreements on climate change like the Paris Agreement take effect.
According to Mr Heng, the GST will be increased progressively from 7 per cent to 9 per cent over the period of 2021 to 2025. "They will simply choose to spend more prudently".
The government will implement the GST hike in a progressive progressive to minimize the impact on lower income households, he added. "We will provide more details once we have determined the timing of the GST increase".
The increase of S$7.7 billion is mainly due to exceptional statutory board contributions of S$4.6 billion, primarily from the Monetary Authority of Singapore, and to increased stamp duty collections of S$2.0 billion following the recent property market pick-up, Mr Heng said.
Tax law expert Valerie Wu based in the Singapore office of Pinsent Masons, the law firm behind Out-Law.com, said that overseas suppliers which have establishments in Singapore need not pay the new tax.
The Ministry of Finance said that now GST is levied only on companies that are based here but not those from overseas.
B2B imported services will be taxed under a reverse charge mechanism, while B2C imported services will be taxed under an overseas vendor registration model.
This will be the first time since 2007 that the GST has been increased in Singapore.