Malaysia government to impose 6% digital service tax on foreign firms

Kuala Lumpur, Malaysia. Photo: Alex Block/Unsplash

Malaysia’s government has fixed 6 per cent as the rate for a digital service tax on foreign service providers, which will be implemented from January 1, 2020, according to Deputy Finance Minister Amiruddin Hamzah.

The Malaysian Parliament passed the Service Tax (Amendment) Bill 2019 on Monday evening.

Digital service is defined as any service that is delivered or subscribed over the internet and other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.

Amiruddin noted that the 6 per cent rate is relatively low compared to other countries such as Norway (25 per cent), Russia (18 per cent) and New Zealand (15 per cent).

To recap, the Malaysian government had proposed the digital service tax on foreign digital service providers during the tabling of the country’s Budget 2019 last November, for delivery of services including music, video, streaming services and digital ads. Some of the brands it had mentioned were Netflix, Spotify and Stream.

According to Amidruddin, the reason that the tax was proposed is that it was deemed unfair that only local digital service providers pay tax.

“The digital tax is to provide a level playing field among local and foreign companies, as well as between online and offline service providers,” he said, adding that the tax is not something new but the government is merely expanding the scope of tax collection.

Under the bill, tax defaulters can be fined up to 50,000 ringgit, imprisoned for a term of up to three years, or both, upon conviction.

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