C2C economy will create loophole for proposed digital tax

It is not easy to track online transactions between consumers, according to Frost & Sullivan


The consumer-to-consumer (C2C) economy will create a loop-hole for the implementation of the proposed digital tax in the country, which is expected to be introduced in the tabling of Budget 2019 on Nov 2.

Frost & Sullivan Malaysia MD Hazmi Yusof (picture) said the C2C space will have online transactions that are difficult to be tracked and thus create challenges for the collection of the digital tax.

“It is not easy to apply such a taxation due to a lot of transactions are happening between consumers. It is not easy to track (transactions) and, therefore, it cannot be taxed,” Hazmi said on the sidelines of “The Future of Airports — Vision 2030” in Kuala Lumpur yesterday.        

Investopedia defines C2C as a business model whereby customers trade with each other, typically in the online environment such as through eBay and Craigslist.

Hazmi said the C2C economy is a big phenomenon in the “democratisation of everything” — a global megatrend that includes the rising of anything-as-a-service, the sharing economy, “sellsumers”, big data and a few others.

Putrajaya is considering implementing a tax system on digital transactions including those provided by foreign content providers.

Deputy Finance Minister Datuk Amiruddin Hamzah previously said the move is expected to strengthen and expand the government’s revenue base, in light of the growing digital economy.

Institute for Democracy and Economic Affairs (IDEAS) said the introduction of such a tax
could affect start-ups and small and medium enterprises as it would increase the costs of digital goods and services — which subsequently could slow the development of the digital economy in the country.

According to IDEAS, there are two new proposed taxes — namely the “direct taxes” that target the profits of foreign digital companies doing business in Malaysia and
the “indirect taxes” that apply consumption taxes (like the Sales and Services Tax) to foreign companies selling digital goods and services into Malaysia, and paid by the

Malaysia would be the second country in South-East Asia after Singapore to introduce a tax scheme for the digital sector should Putrajaya proceed with the idea.