This article first appeared in The Edge Financial Daily on September 13, 2018

KUALA LUMPUR: The government is looking at a new mechanism to impose digital tax on overseas content and services provider — the foreign entities that provide services and content in Malaysia — as a way to explore new sources of revenue for the country.

Deputy Finance Minister Datuk Amiruddin Hamzah said the government is wondering if the implementation of the digital tax can be incorporated in the upcoming Budget 2019, which is scheduled to be tabled in Parliament on Nov 2.

“We are looking at the matter (digital tax) but I’m not sure if we can quickly incorporate it in the budget tabling later.

“We need to explore new sources of revenue. This will definitely be one of the issues we will look into deeply,” he told reporters on the sidelines of the launch of a new World Bank report here, yesterday.

Amiruddin also said the government has yet to decide on the tax rate to be imposed on digital economy players. “We will come out with the new mechanism but we are still studying it now,” he said.

“If we ignore this [digital tax], I think the nation will be losing an avenue for revenue.”

Meanwhile, the new report that was launched, entitled “Malaysia’s Digital Economy: A New Driver of Development”, is a summary of the work that was done under a programme managed by the World Bank Group Global Knowledge and Research Hub in Malaysia, in collaboration with the Ministry of Finance (MoF) and several other partners.

According to the report, Malaysia’s past performance in the area of digital economy bodes well for the future of the sector.

It also highlighted four important policy goals that it believes will help unlock the full potential of the digital economy in Malaysia. They four are: create a more dynamic digital ecosystem with increased competition; achieve universal, fast and inexpensive internet connectivity; improve human capital through better curricula and life-long learning opportunities; and safeguard future digital tax revenues.

As to the possible government target on revenue contribution from the digital economy to the national gross domestic product (GDP), Amiruddin said the government will look into the report thoroughly and assess the country’s strong and weak points, before setting a reasonable target.

Amiruddin also said an enabling ecosystem is in place but Malaysia needs to create a dynamic one in terms of internet connectivity, specifically on fixed broadband for businesses and households, to enhance the digital economy going forward.

“We need to double the speed at half the price. When this happens, we expect more companies to come onto the bandwagon and use digital transactions. I’m sure we will be able to move in this direction,” he added.

World Bank Group lead economist in macroeconomics, trade and investment Richard Record said the modality of the taxation being considered is crucial, as it will reflect the rapid changes of economic activities taking place through the digital channel, which involves multiple, different entities.

“So it is not so much the level of taxation [imposed]. The government needs to find a balance between imposing its policy and [enabling] digital players. Make sure the taxation is transparent.

“We [the World Bank] will encourage policymakers to look to what other countries are doing and perhaps come out with something similar,” he added.