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Malaysia looking into e-commerce tax

Malaysia’s Prime Minister reportedly stated that the country should impose an e-commerce tax against online businesses, given how their growth presently exceeds that of businesses utilising ‘traditional’ models such as physical retail stores.

Speaking to reporters after the 34th ASEAN Summit gala dinner on 22 June 2019, the PM noted that governments have been collecting “less tax” as many brick-and-mortar stores have been shutting down, as many goods can be bought online now.

Online business is affecting other businesses. Through direct-selling, less tax is obtained, also the tax goes to the country where the product is generated, and Malaysia is not able to make anything, he said.

The PM noted that taxation will assist governments in gauging the amount of profit being made by online businesses.

ASEAN leaders propose to collect at least half of their profits via through an e-commerce tax.

Previously, plans to impose the Goods and Services Tax (GST) on digital services by foreign providers were announced during the premiership of Najib Razak in 2017. However, the tax was scrapped following the takeover by the Prime Minister’s administration on 9 May last year.

The Director-General of the Customs Department at the time predicted that “billions of ringgit” can be “easily” collected from the digital economy.

Currently, Malaysia is amending a few of the tax laws, especially with regard to the GST to collect taxes from foreign companies that offer digital services in Malaysia.

Singapore to implement GST to digital services starting Jan

It is not just Malaysia that has been considering this; Singapore’s Finance Minister noted in his Budget 2018 speech that the Government intends to tax digital services via the GST. A Bill pertaining to the taxation of digital services was introduced late last year, and the new tax will come into effect starting January next year.

The GST will apply to cross-border B2C and B2B digital services and is projected to rake in approximately S$90mil in tax revenue yearly.

Foreign digital service providers and such electronic marketplace operators including application stores are expected to register for GST, if their global turnover and the value of digital services provided to non-GST registered customers in Singapore goes beyond S$1mil and S$100,000 respectively in a single calendar year, or is predicted to achieve a said level of turnover.

Currently, services such as consultancy and marketing purchased from overseas suppliers are not subject to GST. Local consumers also do not pay GST when they download apps and music from overseas. This change will ensure that imported and local services are accorded the same treatment.

Malaysia’s digital tax

According to an earlier report by OpenGov Asia, the Malaysian government plans to impose a digital service tax of six per cent on foreign digital service providers from 1 January 2020, according to the Deputy Finance Minister.

The Minister was noted that the rate was deemed the lowest compared to the rate imposed in several other countries. He stated that it is unfair if only local digital service providers are required to pay the tax. This is not a new tax it’s just having the scopes extended to providers in other countries.

It was noted that the government has the power to enforce the law even if the digital service providers were in other countries as there exists a government-to-government (GTG) cooperation among countries involved in the Organisation for Economic Cooperation and Development (OECD).

This cooperation enables the Government to take legal action against foreign companies which refuse to pay the service tax.

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