SG high court ruling on GST unlikely to impact pricing strategies

Singapore’s High Court decided that GST should be applied to products’ discounted prices instead of full market value.

The decision by Singapore’s High Court that Goods and Services Tax (GST) should be applied to products' discounted prices rather than their full market value is expected to have minimal effect on direct selling companies' retail approaches.

Jackson Cai, Executive Director for Goods and Services Tax at BDO Singapore, explained that while the decision is not expected to significantly influence direct selling companies' pricing strategies, there is potential for companies to leverage the ruling for enhanced profitability. 

“Members are unlikely to be registered for GST and unable to recover GST costs. The effective GST savings could be $2.25 on a $100 product, encouraging member purchases and possibly boosting sales,” Cai stated.

Cai emphasised that GST is generally not the primary factor influencing business decisions or arrangements. “The choice of a selling model depends on various factors like the nature of the products, target market, and profitability,” he said. 

He added that the court's decision to calculate GST based on the consideration received from members, after deducting standard or tiered discounts, could make similar direct selling business models more appealing.

Eu Chin Sien, Executive Director and Head of Goods and Services Tax at BDO Singapore, noted that the ruling might not significantly impact the actions of traditional retailers. “Traditional retail channels offer a broader reach across diverse customer segments, and visibility plays a crucial role in fostering brand recognition and trust,” Eu pointed out. 

She further explained that challenges such as scepticism about legitimacy may affect brand perception, making it uncertain whether the ruling will alter competitive dynamics between traditional and direct-selling retailers.

“I would think that product types and target consumers will still be the main considerations for retailers to decide which model works better for them,” she said.

Cai cited various factors influencing business arrangements or decisions including the nature of the products, target market, profitability and the desired level of control over the sales process. 

“This is because members are incentivized to purchase higher quantities to enjoy higher tiered savings and profits, leading to increased sales or the retail companies as discussed earlier,” he said.

Eu noted that based on 2022’s retail sales data for the global direct selling industry in Singapore and the court’s ruling, retailers operating under similar direct selling models might seek a refund of any excess GST paid previously, which may trigger legislative changes to prevent tax loss.

“It will be interesting to see if IRAS considers amending the Singapore legislation to introduce a special valuation provision for goods sold through a direct selling model, similar to the UK VAT legislation,” Eu added.