MoF: Digital tax on services, not goods

Govt has established several guidelines to ensure no issue of service providers and consumers being charged with double taxation


THE digital services tax is only imposed on services and not goods, to protect local service providers by creating a level playing field with overseas-based businesses, said the Ministry of Finance (MoF).

“The imposition of services tax on imported digital services is to ensure fair treatment for local service providers and create a level playing field for both service providers, local and overseas-based, who are providing taxable services to businesses and users in Malaysia,” the MoF said in a statement yesterday.

It added that the government is also sensitive to the price hike issue and cascading effects on consumers.

As such, the government has established several guidelines to ensure no issue of service providers and consumers being charged with double taxation.

Firstly, the ministry said group relief facilities are extended to local service providers as they are not charged with digital services tax on imported taxable services from overseas-based suppliers in the same group.

There is also exemption from accounting and paying digital services tax based on self-recipient accounting method of import professional services and advertising services (business-to-business). The type of imported taxable services is similar with the services provided by the company.

Local service providers who have paid tax to foreign service providers on imports of digital services (business-to-consumer) can claim refunds from the Royal Malaysian Customs Department and offset based on the actual amount of services tax paid.

Distance education services for preschool, primary, secondary and tertiary education, including vocational and professional training, which are being provided online by either local or foreign service providers are not categorised as a taxable service and not subject to digital services tax.

Lastly, online services such as e-newspapers; educational, technical, scientific, historical or cultural journals; or periodical reading materials are not categorised as a taxable service and does not apply to the digital tax.

The 6% tax will be charged to foreign digital service providers with sales of more than RM500,000 a year beginning Jan 1, 2020, after the Service Tax (Amendment) Act 2019 was passed in the Dewan Rakyat in April 2019.

Under the Act, tax defaulters can be fined up to RM50,000, or imprisoned for a term of up to three years, or both, upon conviction.

The proposed law is applicable to any person, of whatever nationality or citizenship, beyond the geographical limits and the territorial waters of Malaysia, if the person is a foreign service provider.

Taxing the digital economy is expected to bridge the shortfall of the scrapped Goods and Services Tax, which contributed RM44 billion to the government’s funds in 2017.