World Bank states that raising tax revenue from the digital economy is important in the nation’s scal reform efforts
by NG MIN SHEN / pic by MUHD AMIN NAHARUL
THE government is considering implementing a tax system on digital transactions including those provided by foreign content providers.
Deputy Finance Minister Datuk Amiruddin Hamzah said the move is expected to strengthen and expand the government’s revenue base, in light of the growing digital economy.
“We are looking into it (taxing foreign content providers). We will impose something because if we don’t, I think the nation will be losing its revenue,” he said after launching the
“Malaysia’s Digital Economy: A New Driver of Development” report by the World Bank Group in Kuala Lumpur yesterday.
He added that the tax rate on digital revenue has yet to be decided as the government is still studying the matter.
“I’m not sure if we will be in time to incorporate this into the upcoming Budget 2019, but that’s definitely one of the things we are looking at,” Amiruddin added.
In its report on Malaysia’s digital economy, the World Bank stated that raising tax revenue from the digital economy is becoming increasingly important in the country’s fiscal reform efforts to further strengthen and diversify its revenue base.
“It is difficult to estimate both the growth of the digital economy and the potential tax revenues given the lack of data.
“But, given the sizeable and growing presence of foreign providers in Malaysia such as Facebook, Grab and Spotify, it is reasonable to expect substantial future tax revenues from the digital economy, which would increase faster than the traditional tax base,” the report stated.
Digital tax reform could also help level the playing field between domestic and foreign suppliers of digital goods and services, and support mainstream taxation, depending on the government’s strategy.
According to the report, Malaysia has four options for taxing digital goods and services provided by non-resident companies, one of which is taxing digital transactions indirectly by requiring suppliers to collect Goods and Services Tax or Sales and Services Tax in line with international practice.
Meanwhile, a direct approach would entail redefining the country’s permanent establishment rules, expanding Malaysia’s existing tax on technical services, or establishing a new, freestanding tax on income from digital transactions.
The report also stated that an international consensus on digital economy taxation has yet to be achieved, for reasons such as the ability to secure tax revenue being conditional on identifying who owes the tax and having an effective domestic tax charge to apply to that enterprise or individual.
Earlier in his speech, Amiruddin said the future of the Malaysian economy will be strategically embedded with and driven by the digital economy, while the development of an efficient ecosystem in the digital world starts from the need to work together and to reinforce one another.
“I personally believe that many policies have already been put in place, though there is always room for improvement to handle and counter these challenges, which include slow Internet connection, relatively high cost for high-speed broadband and low digital adoption by businesses compared to households and the government,” he said.
He added that everything and anything which have an impact on digital world progress and development, as well as deliverables, must be taken into account.
“Therefore, we need to look at many dimensions of the digital economy, including talent development or education, taxation, employment, cyber security, e-commerce activities, start-ups and funding requirements, and the digital free trade zone,” he said.
He added that there could perhaps be a day when digital technology in commerce, and business transactions in the production and supply value chain can help in identifying taxable items, while making revenue more transparent and on a real-time basis.
“This will help the government to impose and track the appropriate tax on the right items and revenue, and at the right time, irrespective of the prevailing taxation system at any point in time,” he said.
The World Bank also suggested four important policy goals that will aid the country in unlocking the full potential of the digital economy here.
The goals include creating a more dynamic digital ecosystem with increased competition, achieving universal, fast and inexpensive Internet connectivity, improving human capital through better curricula and lifelong learning opportunities, and safeguarding future digital tax revenues.
The report is the product of a year-long work programme managed by the World Bank Group Global Knowledge and Research Hub (GKRH) in Malaysia, in collaboration with the Ministry of Finance and other partners.