Malaysia to impose 6% tax on overseas-based services purchased online from Jan 1

Google Malaysia recently said a 6 per cent digital tax would take effect on its G-suite services.
Google Malaysia recently said a 6 per cent digital tax would take effect on its G-suite services.PHOTO: REUTERS

PETALING JAYA (THE STAR/ASIA NEWS NETWORK) - Consumers in Malaysia could be paying 6 per cent more if they buy or subscribe to overseas-based digital services, with the imposition of the digital tax on Wednesday (Jan 1).

A college student who buys a RM260 (S$85.40) computer software online, for example, may have to pay an extra RM15 in digital tax.

And an entertainment streaming subscription of RM40 a month, may cost another RM28 a year as the digital tax comes into effect in the new year.

The digital tax was announced during Budget 2019, which outlined that a 6 per cent service tax would be imposed on foreign digital services - including software, music, video and digital advertising - from Jan 1, 2020.

The digital tax legislation, which was gazetted in July this year, will affect overseas-based companies which offer digital services, including online licensing of software, mobile applications and video games, online platforms which sell products and services and digital content services.

Under the new law, tax defaulters can face a fine of up to RM50,000 and/or imprisonment of up to three years if found guilty.

Google Malaysia recently said a 6 per cent digital tax would take effect on its G-suite services.

Facebook said it would be charging the 6 per cent digital tax for its advertisements in Malaysia, while PlayStation Store said it would apply the tax on purchasable items and subscriptions on its platform.

Other companies, such as Netflix and Spotify, have yet to announce whether they will absorb the tax or charge their users for it.

Other countries which also impose the digital service tax include Australia (10 per cent), Norway (25 per cent) and South Korea (10 per cent).

A Customs Department spokesman said at least 126 foreign digital service providers had registered for the tax in Malaysia as of Dec 20.

 
 
 
 

Some of the companies that registered included Netflix, Spotify, Google and Airbnb, he said.

"As of now, we do not know how many foreign companies are eligible, so the implementation of the tax will be based on the soft approach. This means we will provide notices inviting such companies to register for the tax, should the company reach the threshold," the spokesman said in a text message.

The tax collected from the companies would be remitted to the Customs Department.

Economist Yeah Kim Leng said the digital tax would "level the playing field" between local and foreign digital service companies.

"Digital players based in Malaysia are already paying or collecting the 6 per cent Sales and Services Tax (SST) from customers," he said.

"With the digital tax kicking in next year, foreign service providers will be covered. Some players like Airbnb are already implementing the tax for the government," he said.

Mr Brynner Chiam, director at tax advisory company Axcelasia Taxand, said the impact was not likely to be significant.

"This is because Malaysian households tend to spend less on digital services in comparison to tangible goods.

"Another factor is that the adoption of e-commerce among Malaysian consumers is relatively low at 51.2 per cent," he said, referring to a 2018 survey by the Malaysian Communications and Multimedia Commission.

Registration is mandatory for a foreign service provider if its annual turnover from digital services exceeds RM500,000.