How the GST hike will affect subscription platform services

From 2020 onwards, international subscription platform services such as Netflix will soon be subject to paying GST to the government.

In other words, these digital services will be taxed as part of the new digital economy. Singapore is the first country in Southeast Asia to implement this, and this will likely follow in the region as a result. 

For a time, a loophole was exploited by overseas vendors since only local vendors were subject to GST charges.

This new GST increase is also in part due to generating an additional revenue stream for the government, as well as to level the playing field and make things fair and equal about local retailers for services, regardless of whether they’re obtained locally or overseas.

This means that businesses like Netflix, Spotify, and the upcoming Disney+ that many are anticipating will be affected by this new tax increase.

And while consumers of these subscription services will be affected, having to fork out more money, these very businesses will also experience some great changes as well in the coming years.

Rather than be blindsided by these additional costs and expenses, it would be wiser to fully understand what the effects of this new tax are, and how it may or may not benefit your business.

Let’s take a look at the ways subscription platforms and digital services will be affected by the new GST rule come 2020.

1. Subscriber Drop Off Rates Will Increase

Because companies like Netflix will now have to fork out additional cash for GST to the government, consumers will subsequently have to pay more every month to maintain their subscriptions.

This might not sit well with consumers (or their wallets for that matter).

Customers old and new will begin to take the market more seriously and scrutinise all available options as they shop around for the subscription platform with the best bargain or the lowest price. 

In the US, consumers are reportedly suffering from ‘subscription fatigue’ as a result of the boom in the streaming platform market, with new players entering such as Disney+.

Media and content are being segregated more and more, as is the case for all Disney movies and shows being pulled off Netflix in anticipation of the new streaming platform’s entry into the market. 

It is natural, then, that consumers will want to reduce this fatigue by seeking out the most value for money platform out there.

Businesses, as such, will have to anticipate an increased drop rate and prepare countermeasures to handle this in the new year, once the tax is implemented. 

2. Dropping Revenue to Absorb GST for Consumers

Naturally, this shift in the market in terms of consumer attention will mean that businesses need to come up with countermeasures (as mentioned above) to combat this increased expense for their consumers.

For companies who are unwilling to let their subscribers and consumers go, a method to counteract the new GST rule may be to absorb the additional GST costs entirely. 

This means that consumers will still pay the same subscription fees and likely not drop off, but businesses will experience a loss in revenue because of the additional expense. 

Whether or not this is worth it for the business remains to be seen. For the case of Netflix versus a platform like Disney+, more popular and well-known films and content may win over the masses more than a lower price point might.

3. Businesses Can Make GST Claims

While the heat is certainly on the market and for your business, all hope is not lost. GST refunds are still available for businesses with taxable goods and services.

To do this, businesses would need to apply the reverse charge mechanism. Reverse charge works this way: a business will pay GST to the taxman first, before making an application to claim back the total amount paid.

Of course, this is applicable to businesses that have taxable goods and services.

If a business has goods and services that are taxable by the state, and will subsequently be taxed when sold to consumers, then this business will be eligible to make claims for the GST.

Hence, an increase in consumer and subscription fees may allow your business or subscription platform to have a bit of tax relief.

Do note that for businesses based overseas, local importers will be the ones bearing the GST cost, taking this problem away completely. 

4. GST Increasing to 9% Between 2021 to 2025

It should be noted that businesses will likely be further impacted by the increase in GST rate from the current 7% to 9%.

They will either have to further absorb the additional 2% or make consumers pay a higher subscription fee for their services at the risk of them dropping off to shop for cheaper alternatives in the market.

So while subscription platform businesses need to now contend with the 7% charge for GST, they should also similarly prepare for a hike in GST by 2% in the coming years, whether it’s coming up with new deals to secure popular shows and content or producing better content to combat giants like Disney.

Why do businesses like Netflix and Spotify have to be taxed all of a sudden?

This new implementation is meant to generate a new revenue stream for the government. Specifically, the generated revenue amount is projected around $90 million per year.

This likely means that there’s no getting around the tax or avoiding it completely, one way or another, and businesses ought to be prepared to be taxed regardless of whether they’re based locally in Singapore or based overseas in another country.

Businesses must now look at their plans for the coming year and beyond in order to properly deal with the new GST changes that are soon to be imposed, in order to figure out how best to move forward. 

After all, suffering the loss of subscribers and consumers will mean a larger revenue loss in the long run – and digital services like Spotify, which are already loss-making, need to know how to counteract that.