Economic Implications Of E-commerce Tax And Impending GST Increase

Following Singapore’s better than expected economic growth in 2017, the market has been expecting an impending increase in the Goods and Services Tax (GST). Apart from this, Finance Minister Heng Swee Keat has also hinted at an e-commerce tax soon. Mixed market reactions followed. What are the economic implications of the e-commerce tax and the impending GST increase?

Sign up for an economics tuition class with a reputable economics tutor today to learn about the costs and benefits of the e-commerce tax and the impending GST increase. There are a few highly recommended economics tuition centres in Bishan which include the Economics Cafe Learning Centre headed by Principal Economics Tutor Mr. Edmund Quek. I will explain briefly here some important factors at play. You may ask your economics tutor to provide a more comprehensive analysis in economics tuition.

Increase in Government Revenue

Amounting to a total of S$11 billion in fiscal year 2017, GST is Singapore government’s second largest source of income, next to corporate tax. Based on S$11 billion, an estimated two per cent increase in tax rate will contribute to an additional tax revenue of S$220 million.

According to Statista, a Germany-based market research company, the total spending on e-commerce in Singapore was S$3.9 billion in 2016 and S$4.4 billion in 2017. It was expected by Statista that e-commerce spending would exceed S$6.7 billion by 2022. If GST was to be imposed on e-commerce in Singapore, based on the current GST rate of seven per cent and S$4.4 billion e-commerce spending, the government would be able to collect an additional tax revenue of S$308 million.

Singapore’s GST is higher than Malaysia’s six per cent and lower than Australia’s ten per cent. With guidance from your economics tutor, explain the potential impact of an increase in GST on the international trade and Balance of Payments in Singapore.

Removal of Unfair Advantage for Overseas Suppliers

Online shopping has become a norm for consumers in Singapore. A study conducted by Ernst & Young in 2016 found that forty per cent of consumers in Singapore purchased products and services online. In addition, consumers in Singapore were found to be more active in online shopping than their counterparts in Malaysia and Australia. The current tax relief allows overseas suppliers the unfair advantage over local suppliers as they are exempted from the seven per cent GST for goods and services valued at less than S$400. This is especially tough for bricks-and-mortar local retailers who are struggling to cover high overhead expenses including rental, manpower and GST while remaining competitive with their pricing. Discuss with your economics tutor in economics tuition the economic viability of bricks-and-mortar businesses in the current digital age.

Like a double-edged sword, the impending e-commerce tax and increase in GST have their drawbacks.

The Drawbacks of Higher Taxes

Students have learned from their economics tutor in economics tuition, the inverse relationship between price and demand. Draw the demand and supply curve before and after tax with guidance from your economics tutor. Depending on the price elasticity of demand and supply, the cost of tax will be shared between consumers and firms. In most cases, a higher tax will ultimately lead to a higher price which will result in lower consumption.

It is also some tax experts’ concern that compliance cost may outweigh revenue collected in imposing an e-commerce tax. Cross-border transaction must be subject to more stringent checks in future. To ensure compliance, the Singapore government may need to invest heavily in a reliable system to record all cross-border transactions and calculate GST payable automatically. Additional manpower will also need to be deployed to carry out such checks.

I welcome the government’s move to standardise the tax levied on goods and services offered by both local and overseas suppliers, through physical stores or online. Let us wait in anticipation more details from the government.

Linda Geng

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