Malaysian Parliament Approves Bill To Impose Service Tax On Digital Services

; posted on
April 10th, 2019

The Malaysian government approved the Service Tax (Amendment) Bill 2019, which provides for the taxation of digital services. The service tax applies to foreign service provider making supplies to Malaysian consumers (B2C) which starts from 1 January 2020. This was proposed as part of the Budget for 2019 and includes the introduction of service tax registration.

Scope of DST

The taxation applies to foreign service providers including persons outside Malaysia providing digital service to Malaysian consumers, as well as persons outside Malaysia operating an online platform for the provision of such services including music, video, streaming services and digital ads. Some of the brands it had mentioned were Netflix, Spotify and Stream.

Under the Service Tax (Amendment) Bill 2019, these online services provided will be subjected to 6 per cent tax. In addition, the bill also defines digital service as any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.

The service tax aims to neutralize the cost disadvantage faced by physical retailers against their virtual storefront counterparts, especially those operated by foreign entities.

Registration and Penalty

Foreign service providers will be required to register for service tax in Malaysia if they exceed or are expected to exceed a MYR 500,000 supply threshold in a 12-month period. Failing to comply with the new requirements will result in a fine up to MYR 50,000, imprisonment for a term of up to three years, or both.

Although the digital service providers were in other countries, the government has the power to enforce the law as there exists a government-to-government (GTG) cooperation among countries involved in the Organisation for Economic Cooperation and Development (OECD).

Source: Malaysian Parliament

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