Digital tax on foreign service providers ‘to ensure level playing field’

A service tax of 6% will be imposed on imported online services, including software, music, video and digital advertising, from next year. (AFP pic)

KUALA LUMPUR: Putrajaya today defended the digital tax on foreign service providers that will come into force next year, saying it is to create a level playing field.

From Jan 1, a service tax of 6% will be imposed on imported online services, including software, music, video and digital advertising.

Deputy Finance Minister Amiruddin Hamzah told the Dewan Rakyat it was not fair that local providers were subject to the tax but foreign providers were exempted.

“The service tax is not new, we are just expanding the scope of it,” he said in his winding-up speech on the Service (Amendment) Bill 2019 at the policy stage.

The bill was later passed.

Among examples of digital services are online music and video subscription, e-book subscription, usage of the e-marketplace platform, cloud computing storage subscription as well as the purchase of online computer software.

It is proposed that any foreign registered person who contravenes the Act will be fined up to RM50,000 and/or imprisonment for a term of up to three years.

Under Subsection 2(1e) of the Service Tax (Amendment) Bill, a foreign service provider is a person outside Malaysia providing digital service to a consumer, and includes any person operating an online platform for buying and selling goods or providing services (whether or not such person provides any digital service).

In Subsection 2(1f), digital service is defined by service delivered or subscribed over the Internet and other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.

Amiruddin (PH-Kubang Pasu) said many countries had begun imposing digital tax, such as Russia, New Zealand, Norway and South Korea, while others were in the midst of introducing it.

He said New Zealand, Russia and Norway imposed relatively higher taxes – at 15%, 18% and 25% respectively – compared to Malaysia’s 6%.

He was confident that foreign providers would comply as they would want to safeguard their image.

Although the digital tax could prove challenging for smaller companies, he said, those who were ambitious to expand their services “will do the necessary”.

Amiruddin also said that with government-to-government cooperation, Malaysia could ask foreign governments to take action against companies that refused to pay the tax.

Earlier today, four other bills – the Customs (Amendment) 2019, Excise (Amendment) 2019, Free Zones (Amendment) 2019 and Sales Tax (Amendment) 2019 bills – were passed to grant duty-free status to Pangkor Island.

The duty-free status is in line with the government’s promise when it tabled Budget 2019.