E-commerce taxes are very likely to be included in the yearly budget, which will be rolled out on February 19. Singapore, along with several other countries in the region, is tackling the issue of how to impose levies on online retail, a sector that has posed a serious and growing threat to traditional stores.
In a survey of economists conducted by Bloomberg, eight out of the twelve respondents believe that the new budget will include taxes on online retail, perhaps even with cross-border digital transactions. The governments Malaysia, Thailand and Indonesia are also deliberating on online levies, since these are countries where funds are needed for plans for developing infrastructure. These governments also want to make sure that business stays fair for brick-and-mortar vendors.
Online retailers Amazon and Lazada (owned by Alibaba Group Holding, Ltd.) have grown tremendously over recent years. Last year’s online sales in the six largest Southeast Asian economies was US $37.7 billion, and BMI Research believes that this figure will grow to $64.8 billion by 2021. Meanwhile, Credit Suisse Group AG is projecting that the growth of online retail would be 6 to 10 times faster than brick-and-mortar vendors.
A consumer analyst at BMI Research, Nainika Singh, says that taxes on online retailers would benefit traditional vendors, who have been struggling because online shopping has grown tremendously, and if Singapore leads the way in establishing e-commerce taxes, other SEA nations will follow suit.
However, the concern is that it will not be easy to implement e-commerce taxes. Based on experience in the Philippines and Vietnam, online retailers have become skilled in avoiding paying taxes, employing the internet by having several websites for sales and posting goods on social media, as well as pushing transactions in cash. Economists Lee Ju Ye and Chua Hak Bin from Maybank Kim Eng Research wrote about this in a research note last Sunday.
Senior minister of state for law and finance, Indranee Rajah, who last year emphasized the urgent need for such levies, said in an interview on the radio last week that e-commerce tax is something the government would like to begin implementing, and that they are currently studying this. At present, online purchases are only taxed if they exceed S $400 (US $300).
In Thailand, Director General Prasong Poontaneat of the Revenue Departmen believes that taxes on online retailers will cause the annual tax revenue growth to triple at 15 percent. A draft of the bill states that the ceiling rate for this tax is set at 15 percent and is only applicable to e-commerce registered in the country, whose payment system is in the local currency, or deals with money transfers within the country.
Indonesia will also be legislating online retail levies, as soon as consultations with agencies and ministries are concluded. Sri Mulyani Indrawati, Indonesia’s Finance Minister, said that, “The basic principle is that we will create a level playing field, the tax approach for e-commerce and conventional players will be the same.” The country, which needs an infusion of additional revenue, is seeing a boost in the popularity of online sales. To protect SMEs, they will be given lower taxes.
Finally, in Malaysia, the Customs Department has been discussing taxing foreign e-commerce businesses for some time now. It is likely that Malaysia will follow Singapore’s example in imposing a six percent tax on online vendors.