Malaysia fixes digital tax rate at 6%

• Defaulters can be fined up to RM50,000, imprisoned for up to 3 years, or both, upon conviction
• Digital services such as Spotify, Netflix and Steam will be taxed

THE digital service tax set to be implemented from Jan 1, 2020 has been fixed at 6% per annum, with the annual threshold being RM500,000. 

Deputy Finance Minister Amiruddin Hamzah said this when tabling the Service Tax (Amendment) 2019 Bill in the Dewan Rakyat on April 8 to introduce the tax on foreign registered persons providing digital services to consumers in the country.

This means digital services such as Spotify, Netflix and Steam will be taxed beginning next year.

“The digital tax is to provide a level playing field among local and foreign companies, as well as between online and offline service providers,” said Amiruddin.

He emphasised that this isn’t a new tax. Local digital service providers are required to pay the tax and to extend this to providers that are based in other countries would level the playing field.

According to Amiruddin, the Malaysian government has the power to enforce the law if the service providers are overseas as there is a government-to-government (GTG) cooperation among countries under the Organisation for Economic Cooperation and Development (OECD).

The Bill was later approved by lawmakers setting the stage for Malaysia to be the second South East Asian nation to introduce a digital tax after Singapore.

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