The 'Netflix' tax: GST policy changes that will take effect in 2020

Sigh… We've only just started to forget about the goods and services tax (GST) hikes announced during the annual Budget 2018 and 2019 speeches, but alas! It's now time for them to take effect.

A lot was covered in Budget 2018 and 2019, but for both, the key lowlights included several GST policy changes. While some - mainly the lowered GST relief and duty-free alcohol limit for travellers - took immediate effect, others were slated to only kick in 2020 and later.

Back then, 2020 sounded like the distant future. Now, we're less than a month away.

To jog your memory, here's a recap of the GST announcements in 2018 and 2019, as well as the important policy changes that will affect us in the coming year(s).

BUDGET 2018 & 2019 RECAP: GST POLICY CHANGES IN SINGAPORE 

As mentioned, most of Budget 2019's GST changes were implemented quite quickly. Almost immediately, travellers had their GST reliefs reduced to $100 (trips <48 hours) or $500 (trips >48 hours). Then a few months later, the duty-free alcohol limit was reduced to 2 litres.

But those were the petty stuff: the big GST hikes were actually announced during Budget 2018. It was announced that 1) GST will increase by 2 percentage points, 2) GST will be imposed on digital services and 3) GST will be imposed on imported goods purchased online.

Only the second one kicks in next year - the overall GST hike to 9 per cent will start in 2021, and the GST treatment for online goods will remain until further notice.

GST ON DIGITAL SERVICES FROM 1 JAN 2020 ONWARDS 

Starting 1 Jan 2020, GST will apply on imported digital services purchased from overseas providers that 1) have a global annual turnover of >$1 million and 2) make sales of at least $100,000 in Singapore.

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Those that fulfill both criteria must be GST-registered. According to the Inland Revenue Authority of Singapore (IRAS), over 100 of such providers have been newly registered under Singapore's Overseas Vendor Registration (OVR) regime.

The biggest services affected include streaming services like Spotify and of course, Netflix, which the tax is unofficially named after.

THE "NETFLIX" TAX FOR CONSUMERS 

Previously, we didn't need to pay for online services and subscriptions as long as the companies didn't have business entities registered in Singapore.

Say, you subscribe to Netflix online: Before 1 Jan 2020, you didn't have to pay GST because you're buying directly from the Netflix, an American company headquartered in California.

However, with the bill amendment (effective 1 Jan 2020), imported digital services will be taxable too. "Imported digital services" mostly refers to services you purchase online from overseas brands. They can include (but are not limited to) the following:

If you're unsure whether a particular service is taxable, you can check on the IRAS website. Those affected will be indicated as "will be registered" on 1 Jan 2020. Do note that you'll have to key in the company name, which isn't always the same as the brand name.

For example, you'll have to search for "Sony Interactive" if you want to check for PlayStation services.

GST REVERSE CHARGE REGIME FOR B2B SERVICES 

For consumers, that's about it. Prices are likely to go up by 7 per cent, but on the off-chance the company decides to absorb the tax, prices may not change. You can only wait till 2020 to find out.

For business-to-business (B2B) imported services, a reverse charge system is employed instead. Basically, instead of the overseas providers, it's the local GST-registered businesses who are the ones who have to collect and pay GST for the services they import.

Sectors affected include marketing, IT, accounting, legal, HR, management and consultancy services.

WHY MUST WE PAY GST FOR IMPORTED DIGITAL SERVICES? 

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GST is a consumption tax that is applied on goods and services supplied by local suppliers that are consumed in Singapore. For a long time, that used to cover almost everything and anything, but a very obvious loophole emerged with the rise of digital services.

This regulation seemed to put local service providers at an unfair disadvantage. Factoring in GST, you would pay more for a Singapore provider than an overseas one because the former (assuming GST-registered) would have to charge you an extra 7 per cent. The GST bill amendment was implemented to level the playing field and protect local retailers.

During the Budget 2018 speech, Finance Minister Heng Swee Keat said, "Today, services such as consultancy and marketing purchased from overseas suppliers are not subject to GST.

Local consumers also do not pay GST when they download apps and music from overseas. This change will ensure that imported and local services are accorded the same treatment."

… That's the official reason lah.

But most of us - i.e. average Singaporeans - don't think that much. All we know is that prices may go up, and we feel sian about it.

There's not much you can do about it, but if you want to cushion the costs at least a little, make sure you pay for your subscriptions and purchases with a credit card that rewards you for online transactions. The DBS Live Fresh card, for instance, gives you up to 5 per cent cash back on online purchases.

SO WHAT ARE THE OTHER UPCOMING GST CHANGES? 

Your heart (and wallet) can rest easy, because that's about it for 2020.

However, the real GST hike from 7 per cent to 9 per cent will probably happen between 2021 to 2025. The exact "when" and "how" have not been announced, as the government says they will continue to monitor economic conditions.

As mentioned above, the GST treatment for online goods will remain as it is until further notice. That means your online shopping (as long as under $400) will remain exempted from GST.

This article was first published in MoneySmart.