‘Industry not mature enough for digital tax’
KUALA LUMPUR: Malaysia’s digital industry is far from ready to see the form of a digital tax which could make its way in the upcoming Budget 2019.
According to iPay88 Holding Sdn Bhd (iPay88), executive director Chan Kok Long, this is a sector that is struggling to make profits.
“The fintech industry, for example, has made inroads in disrupting the financial industry and changing the way we do business yet the players are still investing in the business rather than making a profit,” he said in a statement yesterday.
“On the other hand, the marketplace is still in infancy stage in Malaysia and many companies within the digital industry are still trying their best to break-even. At the same time, these new tech companies are taking risks while continuously investing in research and development to stay ahead.
“Taxing them now may even push them to collapse or seek other countries as their base,” he explained.
Chan believed the taxation of a young industry will lead to the players looking for greener pastures in neighbouring countries, which will be a loss to the country.
The introduction of a digital tax at this point will hinder innovation and the growth of the industry in comparison to international players entering the market. Chan acknowledges the need for the government to collect tax but pushes for profit based tax instead of industry based.
“Tax is an important revenue for the government. However, instead of an industry based tax, the government should look at taxing based on profits,” he suggested.
“For example, international players should be taxed as they have established themselves and are able to expand into different countries. We believe that the government should set a margin based profit tax to enable the industry to mature into a fully developed economy.
“I hope the government will do an in-depth study into the industry and its challenges before implementing a digital tax without putting a barrier to the growth of the industry.”
Chan also touched on bottom tier SMEs, who are the backbone of the e-commerce industry.
“A considerable number of businesses on market places and social media are made up of small-time business owners like housewives and young entrepreneurs who just make a comfortable income, rather than millions in profit.
“They shouldn’t have to pay an additional digital tax. Instead the government should create incentives and soft loans so that this segment can benefit more from e-commerce,” Chan added.
In supporting the digital economy, Chan hoped the government will defer the digital tax introduction until the digital sector is ready and when many companies in Malaysia can successfully conquer overseas market. He also proposes for the government to form a new ministry to handle digital and technology.
“To help companies like payment gateways, data centres, logistics and marketplaces to build the digital ecosystem and infrastructure, we urge for the government to provide tax incentives in the upcoming Budget 2019,” Chan said.