New digital service tax only on services, says ministry

The finance ministry says services such as subscriptions to digital newspaper or journals will not be taxed.

KUALA LUMPUR: The new service tax of 6% to be levied on online transactions will apply only to services and not goods, the finance ministry said today. The new digital tax will begin on Jan 1.

The ministry said distance-learning services provided online by either local or overseas service providers for preschool, primary and secondary and tertiary education, including vocational and professional training, was not subject to service tax.

Online services such as digital newspapers, and reading materials including educational, technical, scientific, historical or cultural journals or periodicals, are not categorised as taxable and are not subject to service tax, the ministry said.

“It must be stressed that the digital tax is only imposed on services and not goods in order to create a fair competitive environment vis-a-vis the foreign service providers,” the ministry said in a statement.

The ministry said the Customs department would carry out roadshows or information sessions on the tax for the public and local industries.

The ministry said several measures were being taken to ensure that service providers and local consumers are not burdened with double taxation when the new tax is applied.

Group relief facilities were being extended to the import of eligible services by local service providers from foreign service providers which belong to the same group of companies. In this case, the local service providers will not be taxed on the services imported.

Another measure is to exempt a company from accounting and paying for service tax based on the self-recipient accounting method on importation of professional and advertising services when the imported services are the same as the services provided by the company.

Local service providers who have paid service tax to FSPs on digital services could claim for a refund from the Customs, and offset the amount based on the actual service tax paid, the ministry said.