Bracing for digital tax in Budget 2019
KUALA LUMPUR: Digital tax could possibly be announced in the upcoming Budget 2019, Affin Hwang Investment Bank Bhd (AffinHwang Capital) predicted in its budget preview.
In its mid-term review of the 11th Malaysia Plan (MP) report, the government said it may be considering imposing a tax on online transactions involving ecommerce and sharing economy activities.
“Digital tax is mainly focused on overseas service content providers, where if implemented, the digital tax will likely tax foreign suppliers on digital platforms amid the expanding presence of foreign service providers ranging from search, social networking, online advertising, ride-and accommodation-sharing services as well as digital music streaming.
“We believe this may help to expand the tax base to include customers of foreign suppliers of digital goods and services
Digital tax is mainly focused on overseas service content providers, where if implemented, the digital tax will likely tax foreign suppliers on digital platforms amid the expanding presence of foreign service providers ranging from search, social networking, online advertising, ride-and accommodation-sharing services as well as digital music streaming. AffinHwang Capital
who do not pay for corporate tax or SST. Currently Malaysia has a withholding tax of 10 per cent on services rendered by a nonresident taxpayer to a Malaysian resident, including online advertisements,” the research firm said.
AffinHwang Capital saw that other countries including Thailand, where its cabinet had recently approved the draft legislation to collect a seven per cent value added tax (VAT) from foreign vendors and e-commerce platforms buying and selling in Thailand.
The research firm further noted that Indonesia is also in the process of introducing a digital tax where in February 2017 a draft regulation to tax non-resident Over The Top digital service suppliers which are App-based internet services and/or internet-based content services.
“According to the Users Survey 2017 conducted by Malaysian Communications and Multimedia Commission (MCMC), the percentage of users who had shopped online in Malaysia had increased from 48.8 per cent in 2016 compared to 35.3 per cent in 2016.
“Meanwhile, 70 per cent of users had streamed or downloaded video/watch television online in 2016 although slightly lower from the previous year of 70.9 per cent.”
AffinHwang Capital also quoted the World Bank's latest report on the Malaysian digital economy, where by digital economy's contribution to Malaysia's gross domestic product (GDP) rose from 16.5 per cent of GDP in 2010 or RM135.3 billion to 18.2 per cent in 2016 or RM224 billion.
“By 2020, the World Bank expects the contribution to reach 19.5 per cent of GDP, close to the Government's target of 20 per cent by 2020.
“Furthermore, in line with the World Bank, the Malaysia Digital Economy Corporation (MDEC) anticipates the contribution of the digital economy to Malaysia's GDP to rise to 20 per cent based on the growing acceptance of technology by industries such as manufacturing.”
While there are positives and negatives to the introduction of digital tax, which requires a detail study, AffinHwang believed the current government may benefit from a digital tax on the back of the increase usage of the internet for online shopping as well as entertainment streaming services.