Digital economy to contribute 5% to 10% more to GST revenue — Deloitte

This article first appeared in The Edge Financial Daily, on November 23, 2017.
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PETALING JAYA: Malaysia’s plan to tax foreign digital services is expected to be fully implemented by 2019, boosting the country’s goods and services tax (GST) revenue by at least 5% to 10%, said Deloitte Tax Services Sdn Bhd.

“I anticipate that Malaysia will come on board in the next one year or two years,” said Deloitte GST executive director Senthuran Elalingam, adding that many countries have already implemented the GST or value added tax on digital services. They include Australia, New Zealand, Japan, South Korea, the European Union countries and several Latin American nations, he told reporters at Deloitte's TaxMax seminar yesterday.

“With the digital economy, companies can basically be based everywhere and anywhere, and the customs can move everywhere,” said Senthuran. “We want to tax where the consumption occurs, where the customers are, because that’s where they’re receiving the service.”

Thus, he said, Malaysia would most likely try to make it very easy for companies to comply with the rules. “They can [register] online. They don’t have to physically submit documents, they can submit lesser documents, and they can file it electronically. The idea is to make it as simple as possible,” he said.

Senthuran said many of the larger businesses have a very public profile, hence these businesses will do their best to comply to protect their public images. “If you're looking at Google, Amazon, Facebook, they want to be seen as good taxpayers, good corporate citizens. So, that's why a lot of governments are banking on [these larger businesses],” he said.

Senthuran said taxing foreign digital services would give an advantage to local companies that are trying to compete in the global market. He pointed out that iflix imposes 6% GST, while Netflix currently does not charge any GST.

Meanwhile, Deloitte Malaysia country tax leader Yee Wing Peng said the conventional bricks-and-mortar businesses may gradually be disrupted as the digital economy develops, with e-commerce, artificial intelligence, robotics, and cloud computing increasingly being focused on in business. “What I and many investors hope to see is a comprehensive tax incentive framework to attract the foreign investors and local SMEs (small and medium enterprises) to come in and make use of the platform to sell their products abroad.

“Especially for the SMEs, the government needs to offer some incentives in the form of funding made available for them to develop their e-commerce platform infrastructure so they can play a meaningful role in this space and be competitive,” Yee told reporters.

He added that funding should also be set aside to train SMEs to be Internet-savvy and fully leverage the e-commerce platform to market their goods and services globally. Yee also stressed the need for smooth customs clearance for Malaysian products into the Chinese market, saying China currently has laborious customs clearance and approval procedures.

“I hope the Malaysian government can accelerate discussions with China for smoother movement of goods when the virtual platform becomes operational in 2019,” he added.