Making Sense of the 6% Digital Service Tax

In between feeling robbed and understanding how it works


Being charged on what we used to enjoy for free does feel sort of like a robbery, at least for an individual who is writing this, mildly enraged! In order to alleviate this rage, a problem solving skill and a dash of critical thinking were put in work to churn out this article for a general understanding.

A little background on digital tax is that it’s part of Service Tax (Amendment) 2019 Bill that would impose tax on foreign-registered person that provides digital services to consumers in Malaysia. It was passed and approved in the Dewan Rakyat on 8th April 2019.

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A fine up to RM50,000 and imprisonment maximum three years or both could be imposed to convicts of digital tax defaulters under this law. All of this came into effect starting 1st January 2020 where 6% of service tax will be implemented on digital service providers in the country. What does this mean to us as consumers? Indirectly, this would increase the fee of service that we as consumers need to pay; rolling back the cost that they have to pay.

And that is where we generally had our woes.

Why the sudden need of this digital tax?

It has always been brought up for quite some time but implementation only took place this January 2020 in lieu of the tabling of Budget 2020 in October 2019. Seeing the amount of online shopping platforms mushrooming in every corner of the internet for Malaysian users, taking into account that they are foreign-based and taxed only at where they are based at, this is where the tax issue has come into play.

For example, if the platform provider is from country A, it would only comply with A’s taxation laws while in Malaysia we have none. And this is where the Malaysian government realised the untapped segment which has billions of ringgit worth.
In a Bernama report, the Ministry of Finance (MOF) said that the digital tax functions as a fair treatment to local service providers by creating a level playing field for local and foreign providers of taxable services to businesses and consumers in Malaysia.

What has entailed with this taxation?

MOF has rolled out an assurance to consumers that there is no double taxation coming from this digital tax.

“It must be stressed that the digital tax is only imposed on services and not goods in order to create a fair competitive environment vis-a-vis the foreign service providers,” it said.

Distance-learning services by local or overseas providers are exempted and the same goes to online services of e-newspaper, reading materials including educational, technical, scientific, historical or cultural journals and periodicals are not subjected to service tax and does not fall under taxable category.

“The Royal Malaysian Customs Department will do a roadshow/ information sessions on the imposition of imported digital services to members of the public and local industries. In addition, further information may be obtained at the portal.

Opinion further sourced from: Bernama and imoney