Singapore to tax imported professional services from 2020

The Singapore Ministry of Finance has announced that the government will implement a tax on digital services from the 1st of January, 2020, with imported accounting, management, marketing, IT and other consultancy services subject to the new levy.

With its introduction having been signaled well in advance, Singapore’s Finance Minister Heng Swee Keat has in his 2018 budget speech outlined the broader details of the goods and services tax to be implemented in the country, with the GST to apply to imported professional services along with digital consumer offerings such as video and music streaming and software and apps.

“With the advent of technology and digital economy, it has become increasingly common for services consumed in Singapore to be obtained from overseas suppliers, which are able to deliver such services without a presence in Singapore,” the minister said. “Currently, services such as consultancy and marketing purchased from overseas suppliers are not subject to GST and consumers here also do not pay GST when they download apps and music from overseas firms.”

He continued; “Introducing GST on imported services will ensure that, irrespective of whether the service consumed in Singapore is bought from suppliers here or from suppliers abroad, the same GST treatment will apply,” adding that the introduction of the GST was to ensure the country’s tax system remained “fair and resilient in a digital economy”.With respect to professional services, such efforts to level the playing field come on the back of the recent announcement from the Ministry of Finance that the Singapore government will introduce a raft of measures to accelerate the development of the country’s consultancy industry, with a view to adding 5,500 new jobs per year in the sector. Citing home-grown successes such Surbana Jurong, the industry roadmap also seeks to grow more local firms and drive regional and global professional service exports.

Early commentary

In an early round of press comments from the big players of the accounting and advisory world, representatives from Big Four firms Ernst & Young, KPMG, and PwC turned their attention to various aspects of the announcement. Kai Eng Yeo, EY’s indirect tax services leader for Singapore and ASEAN, said; “The big boys will be compliant, as they have a reputation, but for the smaller players, it will be harder to enforce and harder to track.”

Head of global indirect tax services at KPMG in Singapore, Lam Kok Shang said; “Entertainment on-demand global companies such as Netflix will definitely be caught in this. This ‘Netflix’ tax will apply mostly to digital entertainment firms. Other global firms like Uber may also potentially fall into the category as they are providing private-car ride hailing ‘services’ which are not (currently) susceptible to GST.” 

Koh Soo How, Asia-Pacific indirect tax leader at PwC Singapore, said, “The fact that the e-commerce tax will only apply to services show the practical difficulties and complexities that various jurisdictions face in trying to introduce an effective collection mechanism to tax low value imports of goods,” going on to note that as the tax was on final consumption there was an expectation that overseas vendors would pass on the tax burden to local consumers.

Chia Seng Chye, Yeo’s colleague and Partner at EY, said; "Traditionally, tax systems were based on where providers are located. Now, people use electronic means to deliver their services, so the question is how to enforce and administer taxation to suppliers without a physical presence. This is just the tip of the iceberg. We are moving from a conventional taxation model to something new.”