The scope of digital tax is broad as it covers almost all online services provided digitally such as online software licensing, video and music streaming, digital advertising, video games, mobile applications, etc. Any service that is delivered or subscribed over the internet or electronic network would fall within the scope of digital tax.
Consumers who acquire or subscribe to these services would find themselves having to bear an additional 6% service tax imposed by their suppliers who are required to register with the Royal Malaysian Customs Department. However, not all suppliers are required to register. Those with annual sales of RM 500,000 or more would have to, but suppliers with fewer sales would not have to register. The question is whether the latter suppliers would cash in by raising their prices.
A common misconception by the general public is such that digital tax would be imposed on the purchase of tangible goods via online platforms such as online purchases. This is not true as the purchase of tangible goods or products (ie non-digital products) would fall outside the ambit of digital tax notwithstanding that the purchases are transacted online.
For example, the purchase of a computer via online platforms would not be subject to digital tax on the premise that the computer is not a digital product/service. However, this does not mean that the purchases made online on tangible goods are tax-free as most goods would be subject to sales tax, including imported goods.
By and large, the average Malaysian household should not be significantly impacted given that the adoption rate of e-commerce among Malaysians is only 51.2% – based on the survey conducted by Malaysian Communications and Multimedia Commission in 2018. Moreover, a typical consumer tends to spend more on tangible goods rather than on digital services.
The impact on the tax on someone who subscribes to all the above services would be RM61.12 a year. This might not seem large by itself, but as a tax, it becomes a burden.
Almost all online services would be subject to digital tax but in an effort to reduce the burden of the Rakyat and to cultivate learning, the authorities have granted exemption on online education services such as distance learning conducted by qualified institutions. An exemption has also been granted on e-newspapers, online journal and periodicals.
To sum up, Malaysia joined the bandwagon to be one of the early adopters of digital tax alongside with, among others, countries such as Australia, Japan, South Korea, New Zealand and Singapore, with the objectives of creating a level playing field, as well as to increase revenue from the untapped digital economy. It is reported that the global digital economy is currently worth a whopping US$3 trillion. This is another avenue for the Government to raise revenue. Whilst this may not be significant now, it could increase as we find that digitization would grow exponentially over time.