How digital tax affects you — Brynner Chiam

FEBRUARY 17 — Winston Churchill said that “there is no such thing as a good tax”, and our consumers may share this sentiment when service tax on digital services kicked in on 1 January 2020. Essentially, consumers in Malaysia now would suffer tax on the acquisition / subscription of digital services / products. So, what kind of items will be subject to digital tax?

The scope of digital tax is broad as it covers almost all online services provided digitally i.e.  online software licensing, video and music streaming, digital advertising, video games, mobile applications, etc. In a nutshell, any service that is delivered or subscribed over the internet or electronic network would fall within the scope of digital tax.

Therefore, consumers who acquire or subscribe to these services would find themselves having to bear an additional 6% service tax imposed by their suppliers who are required to register with the Royal Malaysian Customs Department. However, not all suppliers are required to register. Those with annual sales of RM 500,000 or more would have to but many suppliers with less sales would not. The question is whether the latter suppliers would cash –in by raising their prices.    

A common misperception by the general public is such that digital tax would be imposed on the purchase of tangible goods via online platforms i.e. online purchases. This is not true as the purchase of tangible goods or products (i.e. non-digital products) would fall outside the ambit of digital tax notwithstanding that the purchases are transacted online.

For instance, the purchase of computer via online platforms would not be subject to digital tax on the premise that computer is not a digital product / service. However, this does not mean that the purchases we make online on tangible goods are tax free as most goods would be subject to sales tax, including imported goods.

In light of the imposition of the tax, the pertinent question is how does the implementation of digital tax impact individuals or Malaysian households?

By and large, the average Malaysian household should not be significantly impacted given that the adoption rate of e-commerce among Malaysians is only 51.2% - based on the survey conducted by Malaysian Communications and Multimedia Commission in 2018. Moreover, a typical consumer tends to spend more on tangible goods rather than on digital services.

The table below depicts the yearly average amount of digital tax that will be potentially incurred by individuals subscribing to the following digital services:

The impact on the tax on someone who subscribes to all the above services would be RM61.12 a year. This might not seem large by itself but as a tax it becomes a burden.   

As mentioned above, almost all online services would be subject to digital tax but in an effort to reduce the burden of the Rakyat and to cultivate learnings, the authorities have granted exemption on online education services such as distance learning conducted by qualified institutions. Exemption has also been granted on e-newspapers, online journal and periodicals.

To sum up, Malaysia joined the bandwagon to be one of the early adopters of digital tax alongside with, among others, countries such as Australia, Japan, South Korea, New Zealand and Singapore with the objectives of creating a level playing field as well as to increase revenue from the untapped digital economy – it is reported that the global digital economy is currently worth a whopping US$3 trillion!

In essence, the digital tax is another avenue for the government to raise revenue. Whilst this may not be significant now, it could increase as we find that digitalisation would grow exponentially over time.

* Brynner Chiam is a Director of Axcelasia Taxand Sdn Bhd.

**This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.