Malaysia digital tax plan: focus on digital economy

Wed May 18, 2016

Malaysia is the latest country to reveal plans to tax the digital and sharing economies.

Malaysia digital tax plan

On Tuesday (May 17) the Malaysian Treasury Secretary-General Tan Sri Dr Mohd Serigar Abdullah was reported by Bernama (the country’s 24-7 news channel) as having requested the Inland Revenue Board (IRB) to conduct a thorough evaluation of the Malaysia digital tax plan, one that would – if adopted – tax the digital and sharing economies.

Tan Sri Dr Mohd Serigar Abdullah told Bernama:

“We need to tax these people who are also earning an income which is taxable. Otherwise, it will be revenue lost for the government with more and more businesses going into the sharing and digital economies. We are also interested in getting those undertaking online businesses to register with the SSM [Malaysia’s Companies Commission], to enable us to track how much they earn.”

If approved the Malaysia digital tax plan could come into effect as early as next year.

Malaysia digital tax plan mirrors other Asia-Pacific approaches

Malaysia joins Asia-Pacific countries such as Philippines and Singapore in tackling this topical subject matter.

More and more jurisdictions are looking into the taxation of the digital economy ever since the publication of the OECD’s Base Erosion and Profit Shifting (BEPS) report in October 2015. Action 1 of the BEPS report recommended the taxation of the digital economy in the form of consumption-based taxation rather than the traditional approach whereby taxation was predicated on the location of the service supplier. The popularity and continued growth of the digital, and sharing, economy has rendered the traditional approach obsolete.

Already in Asia-Pacific the tax jurisdictions of Japan (October 2015) and South Korea (July 2015) have introduced new rules targeting the taxation of digital service supplies by foreign companies to domestic residents. In the coming year New Zealand (October 2016) and Australia (July 2017) will follow suit.

The reasons for introducing such rules are that governments are losing revenue to services that should be taxed (as alluded to in the Malaysian Treasury Secretary-General’s statement above) and domestic digital service suppliers are being undercut by foreign suppliers that are not subjected to the same taxation requirements.

This imbalance in taxation systems, brought about by the evolution of the digital and sharing economies, is what tax jurisdictions worldwide are trying to redress. In doing so they are planning for an increase in their own tax take. Australia, for example, have published tax boost estimates of AUD$150m in their new digital GST measure’s first full year (July 2017 – June 2018) and a further AUD$200m in its second full year (July 2018 – June 2019).

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