Tax on digital businesses not anytime soon, says Johari


The government will not be able to collect any tax from digital business platforms operating in the country, despite online merchants reaping substantial amounts from sales of their products and services.

This is because popular global technology companies and e-commerce platform providers like Alibaba Group Holding Ltd, Uber Technologies Inc, Google Inc and Airbnb which service clients globally, usually record their sales proceeds on books located at headquarters outside Malaysia — traditionally in countries with a low corporate tax regime.

“These platform providers are being hosted outside our jurisdiction and they may not be ‘physically’ present in our country. So, our tax law may not be applicable to them,” Finance Minister II Datuk Seri Johari Abdul Ghani told The Malaysian Reserve.

He said the Inland Revenue Board (IRB) has hit these stumbling blocks in its effort to introduce and implement a tax structure for online platform providers.

Malaysia is not the only country facing this dilemma.

The digital business platforms generate billions of ringgit in revenue from sales and services provided in Malaysia, but do not pay taxes as there is no specified tax structure for them, Johari said.

Hence, he denied media reports that the new tax structure for such businesses could be finalised this year.

According to him, most member states in the Organisation for Economic Cooperation and Development — which include the US, the UK, Japan, Canada and European countries — are still struggling to get uniformity of the standard tax structure for digital platforms.

Johari said most of digital platform service providers operate in the country via a marketing or service office, which leaves IRB with an uphill task to formulate a new tax structure.

“Even the revenue is not being booked here, but in the parent company’s home. So, it is difficult to tax them,” he added.

However, Johari said the new tax formula will not jeopardise local budding entrepreneurs or small online businesses.

“We will not tax entrepreneurs just because they do online businesses. The principle of tax will be applicable to any businesses, regardless (if) they are online or not, as long as it falls within the threshold of taxable income.”

Mohd Irwan says the IRB has the right to collect taxes from companies generating revenue in Malaysia (Pic by Afif Abd Halim/TMR)

In January, Treasury Secretary-General Tan Sri Dr Mohd Irwan Serigar Abdullah said the IRB was studying a mechanism to tax multinational companies (MNCs) conducting digital or online business.

He had said the IRB has the right to collect taxes from companies generating revenue in this country, and a task force had been formed to find a mechanism to tax large online businesses.

“Uber is one example. They make a profit and must pay tax. I am not talking about small online businesses, but big online business with high revenue,” he added.

The IRB expects to collect a total of RM127 billion in taxes in 2017 based on the country’s current economic development.