The Malaysian Insight

WITH the passing of a new law to tax foreign online services in Malaysia, questions remain as to how the authorities will collect taxes from these service providers.

There are no specific guidelines on the exact tax requirements for foreign online services in the new law, tax consultants told The Malaysian Insight.

They said the government many impose a voluntary collection scheme and companies that register will become tax collectors on its stead.

Tax adviser S.M. Thanneermalai said the government can’t compel foreign businesses to register themselves.

“The government has to encourage them instead of pressuring them. If they (companies) don’t want to pay taxes, then we can’t force them either,” he said.

The government could consider blocking services once a threshold of profit is reached, he said.

He added that the Finance Ministry and other tax authorities have yet to reveal more details about the tax.

“Right now, the key is how do we get them on board, can we apply pressure?”

The digital service tax is set to kick in on January 1, 2020 and has been fixed at 6% per annum, with the annual threshold being RM500,000.

Deputy Finance Minister Amiruddin Hamzah said this when tabling the Service Tax (Amendment) 2019 Bill in the Dewan Rakyat on April 8 to introduce the tax on foreign-registered persons providing digital services to consumers in the country.

The tax is applicable to all foreign online services that won’t be accessible without communications technology and software, including online music and media streaming services, e-books, e-marketing, cloud storage, online shopping and similar services.

Various popular online service providers, such as Spotify, Netflix Inc, Amazon.com Inc and Steam, are likely to fall under the new measure, and the tax is expected to contribute billions of ringgit to the coffers.

Tax experts have previously been reported as saying that the 6% tax will be borne by consumers as the digital service tax is a tax on consumers, not businesses.

They added that the foreign providers will bill their clients the tax and pass the collection to the government, in the same way local businesses collect the service tax on behalf of the government.

Konsult Taxation CEO Hong Ling Loong, meanwhile, told The Malaysian Insight he believes that foreign online services will register themselves to keep the Malaysian market.

“Otherwise they would lose the market that can be a ‘threat’,” he said.

Hong said all these companies are headquartered overseas but believes the tax authorities are capable of finding out how much they are making from the Malaysian market and use the figure to compel the companies to register.

“These foreign online companies must register themselves if they want to access the Malaysian market.”

Targeting big players

Asia Business Centre Malaysia tax and financial advisory director Chua Zao Yuan said it is not possible to have all companies to register themselves and it is likely that the government is targeting the big players with the tax.

“If such businesses want to operate in certain countries, then they need to comply with the laws. If they want to do business in Malaysia, then they need to abide and comply.

“Of course, there would be some which won’t register, but I believe for big name companies, possibly more than 80% will choose to register so there are no huge concerns there.”

Chua said it is simply impossible to have all businesses that qualify to register themselves.

Judging from how major companies react to policy changes in other countries, it is highly likely that they will register themselves, he said. – July 27, 2019.