PETALING JAYA: Local online service providers are welcoming the move by the Government to impose service tax on overseas-based digital companies.
On Nov 2, Finance Minister Lim Guan Eng announced that foreign online service providers like entertainment streaming platforms Netflix, Spotify and Steam will be subjected to service tax effective from Jan 1, 2010.
Foreign digital service companies operating locally are also required to register with the Customs Department if they want to continue providing their services to Malaysian consumers, said Finance Ministry’s National Budget Office director Johan Mahmood Merican today.
dimsum chief marketing officer Lam Swee Kim said the move means that Malaysia is recognising the growth of the digital streaming industry.
“We can’t ignore how the digital streaming industry is growing and changing at a rapid pace. Relying on digital services for entertainment has become a huge part of most Malaysians’ lifestyle. This move helps to put the local service providers and the foreign ones on an equal playing field.” dimsum is a Malaysian subscription video-on-demand (VOD) service operated by SMG Entertainment Sdn Bhd.
Kuala Lumpur-based subscription VOD service iflix’s global head of tax Sam Barrett agrees with the statement.
“The intention of the new requirements for foreign digital service providers to register for and charge service tax on their offerings is designed to level the playing field between overseas providers of these services and local Malaysian resident providers, such as iflix,” he said.
Barrett shared that iflix subscribers are already subjected to SST and the pricing will not change with the new tax rules. However, he can’t say the same for subcribers on a foreign service provider plan.
“It is likely though that the retail price of subscription to overseas providers’ services such as Hooq and Netflix will increase as a result of this new tax, unless of course they (the companies) decide to bear the additional tax cost themselves thus reducing their profit margins,” Barrett said.
Online payment services and solutions provider iPay88 executive director Chan Kok Long said the Government was “very friendly” to give foreign companies one year to get prepared before the tax is imposed.
“The Government’s decision to impose levy on foreign companies is a very good move,” he stated, adding that local companies should now show they are capable of competing at an international level come year 2020.
Local game studio Metronomik’s co-founder Wan Hazmer Wan Abd Halim said the tax might hurt local studio’s budgets, but believed it was a small price to pay compared to the bigger picture it provides.
“The bigger picture refers to how the Government is now more aware that the games industry is a proper money-making industry that provides jobs and opportunities for Malaysia to shine abroad,” he said.
He added that not paying digital taxes is something like buying pirated games in the old days: though it means getting the product cheaper, it doesn’t benefit the industry nor the country’s development.
Asked if it would cut into game studio’s profit if they choose to distribute through foreign companies like Steam, Wan Hazmer replies companies are used to being hit with digital taxes in other countries already.
Local videogame developer Studio Kamii’s chief executive officer Hanis Rahim said the tax was not likely to substantially affect their sales figures, as most local game studios market their games to a global audience with a majority of the market located in the United States and European countries.
She added that it could affect consumers in Malaysia, as the price increase would make consumers more selective in buying games.
As for how the tax could increase the cost of software used by the studio, Hanis said smaller studios might shy away from industry standard tools and use less efficient, free alternatives.
A Google spokesperson said the company will wait for detailed guidelines on the tax before making a statement. Bytz has also reached out to Netflix, Spotify, Steam, Lazada and Facebook for comment.Related story:
Foreign online services must register with Customs for taxation
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