Taxing the digital economy

Royal Malaysian Customs Department director-general Datuk Seri Subromaniam Tholasy at the GST conference 2017 yesterday. - The Star/Sam Tham

KUALA LUMPUR: The Royal Malaysian Customs Department plans to amend the goods and services tax (GST) Act to enable the Government to collect taxes from foreign companies operating in Malaysia under the digital economy.

According to Customs Department director-general Datuk Seri Subromaniam Tholasy, the amendments will allow the Government to tap a segment that is worth “billions of ringgit.”

“We are amending a few of the tax laws, especially with regard to the GST to collect taxes from foreign companies that offer digital services in Malaysia,” he told reporters after the GST Conference 2017 here yesterday.

“Taxes from the digital economy... we can easily collect a couple of billions of ringgit. It runs into several billions.

“Nobody knows how big the monster is out there. Once we amend the law and look into the details we would know for sure.”

Subromaniam said the Act could help boost the country’s revenue.


He added that the Customs Department aimed to propose the amendments when the Dewan Rakyat reconvenes next month.

“Of course, the industry will also need to be consulted,” he said.

Subromaniam pointed out that amending the Act would not be “without issues.”

“One of the requirements for GST is that the companies need a place of supply in Malaysia. But if the place of supply is outside Malaysia then it’s difficult to tax.

“It’s not provided for under the GST Act, so we are amending the law to tax the digital economy. That’s from the point of service.

“For products, it’s no problem because it’s physical movement in the country. But services are intangible.

“There are some issues here and they are not only in Malaysia but all over the world.” The GST was implemented in April 2015.

It was reported recently that tech heavyweights like Google and Facebook could face higher tax bills in Europe, as European Union giants Germany and France are pushing for taxes on profits made within the continent by technology firms.

According to a report by The Financial Times (FT) earlier this month, the move would overhaul national tax codes to include an “equalisation tax” for tech companies, which would collect levies based on national turnover.

“Currently, US technology groups such as Apple and Facebook are taxed in Europe based on profits instead of total revenues,” the newspaper said.

It highlighted that many of the companies had “angered” European tax collectors and voters for years by using EU’s disparate tax codes to record profits in jurisdictions with the lowest effective rates.

This means that some companies have been able to pay little or no tax in countries where they have recorded billions in sales.

Under EU treaties, tax measures require all members to back legal changes, including support from low-tax countries like Ireland and Luxembourg, for the initiative to become law, said the FT.

Meanwhile, Subromaniam noted that there was a significant number of service providers that offered their services in Malaysia but based overseas – hence evading tax.

“A lot of people can provide services from outside the country. Payment can be made via credit cards, but the services are being enjoyed and consumed here. So, when the services are consumed in the country, it should be able to tax.

“We’re not worried about business-to-business (B2B). This is a non issue because under the current tax regime, there is no loss of revenue. If it’s B2B, one company would charge tax, another would claim tax. There is no real tax gain to the Government.”

He said the biggest loss in the digital economy is when it is business-to-consumer (B2C).

“When the business provides services directly to consumers and the business which is providing the service is overseas, it gets direct payment and the services are not taxed. This also creates discrimination – the local players get taxed but the foreign players are not.

“This is what we’re trying to correct and once the law is amended, it will create a level playing field. Once the amendment is done, we will have a legal basis to register them and tax the services.”



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Business , GST , Subromaniam , digital economy , taxation ,


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