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Foreign digital goods and services: Legislating GST reform

During the MIA’s International Accountant’s Conference 2017, a panel discussion comprising of the Inland Revenue Board of Malaysia (IRB), Royal Malaysian Customs Department (RMCD), and Ministry of Finance (MOF), discussed about the rising usage of digital services in Malaysia, and the impact they have upon he GST.

A long unanswered question was also posed: How to tax service providers who are not based in Malaysia, but serve Malaysians?

Subromaniam Tholasy, Director General of the RMCD, opined there is an urgent need to reform the GST, because the current situation was not providing a level playing field between digital goods and services companies that are based here and those that are based overseas.

Business to business transactions are adequately covered by the GST, he said, but goods and services consumption by the end users, are not.

Case in point is the Malaysian-made iFlix and US-based Netflix. Both offer similar services to Malaysians, and some would say that Netflix is the more popular service among Malaysians.

But, iFlix pays taxes, and Netflix does not.

And truth be told, there are many digital goods that Malaysians use, that do not require to be based in Malaysia. So how then shall they be approached?

The RMCD’s stance is that they should be taxed, in accordance with one of the cardinal principles of taxation, the equity principle and neutrality. “How can we tax one services, and let the other services get away scot-free? We need to ensure that we provide a similar (business) environment, and (players) are taxed in a similar manner,” he emphasised.

Subro also said “We have recommended to the MOF for GST reform be included in the 2018 budget, but we need to engage the industry first.”

He also pointed out technical issues in terms of liability – if companies do not remit payment, then what is the next step?

Why is there delay in legislating changes to the GST?

GST of foreign suppliers, is one of the most anticipated things for the Budget 2018, according to MA Sivanesan, Deputy Under Secretary, of the MOF’s Tax Division.

“There are issues with compliance and enforcement, because the registrants would be out of our jurisdiction. That’s one of our major concerns.”

He also shared that the MOF does not see an immediate increase or significant contribution from these foreign suppliers.

However, there definitely has to be resolution of enforcement issues first, as well as the issue of the right timing to impose GST and the method of payment to use (split payment, perhaps), so as to ensure there is minimal hassle.




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