Finance Minister Lim Guang Eng formally announced during the unveiling of the National Budget 2019, that foreign online service providers like entertainment streaming platforms such as Netflix, Spotify and Steam will be subjected to service tax effective from Jan 1, 2020.
Clarifying on the new tax, tax advisory Axcelasia Raxand Sdn Bhd managing director Leow Mui Lee guided that the tax, which stirred some shock reaction initially among businesses and consumers, is not imposed on all online transactions.
“This is incorrect as it will only be imposed on services paid to the online company or in application (app). Items under e-commerce have already been subjected to import duty and sales tax.
“For example, the user downloads a game that needs an in app purchase. These are the items that fall under the digital tax,” she was reported saying according to Bernama.
This taxation of mostly business-to-consumer (B2C) foreign entities is only the first tranche of the proposed digital tax as the government has further guided that they are waiting for the Organisation for Economic Cooperation and Development – along with more than 110 countries and jurisdictions – to come up with an agreed approach towards taxing the digital economy by March 2020.