Malaysia should impose an e-commerce tax against online businesses, given how their growth presently exceeds that of businesses utilising ‘traditional’ models such as physical retail stores, said Malaysia’s Prime Minister Mahathir Mohamad.
Speaking to reporters after the 34th Asean Summit gala dinner on Sat (22 Jun), Mahathir said that governments have been collecting “less tax” as many brick-and-mortar stores have been shutting down, as many goods can be bought online now.
“Online business is affecting other businesses. I said Amazon sells books and bookstores have had to close down.
“With direct-selling, we get less tax, also the tax goes to the country where the product is generated, we don’t get anything,” he said.
Mahathir added that taxation will assist governments in gauging the amount of profit being made by online businesses.
“(Asean leaders) propose to collect at least half of their profits (through an e-commerce tax),” he added.
Previously, plans to impose the Goods and Services Tax (GST) on digital services by foreign providers were announced during the premiership of Najib Razak in 2017. However, the tax was scrapped following the takeover by Mahathir’s Pakatan Harapan administration on 9 May last year.
Subromaniam Tholasy, the Director-General of the Customs Department at the time, predicted that “billions of ringgit” can be “easily” collected from the digital economy.
“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 the same year.
“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,” said Subromaniam.
He added that while the service providers might be based overseas, “the services are being enjoyed and consumed here”, and “payment can be made via credit cards”.
Subromaniam also said that business-to-business 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.
Singapore to implement GST to digital services starting Jan next year
Singapore’s Finance Minister Heng Swee Keat announced in his Budget 2018 speech that the Government intends to tax digital services via the GST. A Bill pertaining to the taxation of digital services was introduced late last year, and the new tax will come into effect starting January next year.
The GST will apply to to cross-border B2C and B2B digital services, and is projected to rake in approximately S$90mil in tax revenue yearly.
Foreign digital service providers and such electronic marketplace operators including application stores are expected to register for GST, if their global turnover and the value of digital services provided to non-GST registered customers in Singapore goes beyond S$1mil and S$100,000 respectively in a single calendar year, or is predicted to achieve said level of turnover.
Heng said: “Today, services such as consultancy and marketing purchased from overseas suppliers are not subject to GST. Local consumers also do not pay GST when they download apps and music from overseas … This change will ensure that imported and local services are accorded the same treatment.”
Chia Seng Chye and Lim Ting Ting of Ernst & Young however argued that the Republic “should be mindful about jumping on the bandwagon too readily”, as the “growing risk” of “double or even multiple taxation” may pose as a danger to Singapore’s “long-term economic growth and stability”.
They added that “the Singapore government may need to broaden the availability of our foreign tax credits to include the digital levies suffered overseas, so as to help local enterprises mitigate double taxation arising from the levies imposed by other jurisdictions”.
“This could however translate into additional cost for the Singapore economy if such foreign tax credits are mainly unilateral and not reciprocated by other jurisdictions.
“A measured, coordinated and consensual approach for a digital taxation framework endorsed by the global community at large would be the better way forward”, according to Chia and Lim.