Malaysia announces digital tax starting 2020, funding for tech businesses

Photo credit: The Malaysian Ministry of Finance

The Malaysian government has now confirmed that a digital tax will be coming to Malaysia, following a similar model and timeline in Singapore.

The announcement was made during a reading of the national budget in the parliament by Malaysian finance minister Lim Guan Eng.

Lim said in his speech: “For imported online services by consumers, foreign service providers will be required to register and remit related service taxes to the Malaysian customs, effective January 1, 2020.”

The online services include software, music, video, and any digital advertising.

“These tax measures will balance competition between retail outlets and online stores, especially those owned by overseas companies,” he added.

All imported services will also be subjected to a separate sales and service tax (SST). This is to ensure that local service providers in information technology, engineering and graphic designs, among others, can fairly compete with foreign firms.

The government did not give the specifics of the planned taxes, including the rates.

Currently, the government imposes a 10 percent withholding tax (WHT), which covers some digital transactions. The WHT applies to Malaysian companies’ transactions – digital and non-digital – with foreign service providers.

To lower business costs and avoid “double taxation” – in which a business might pay both the WHT and SST – the government will be introducing a credit system for SST deduction, starting January 1, 2019. The mechanism for this credit system has yet to be clarified.

Other announcements that would impact Malaysia’s digital economy include:

• Introduction of a new Capital Market and Services Act to approve and monitor digital currency and token market trading activities, which will be gazetted early next year.
• A RM 50 million (US$12 million) co-investment fund, where the government will jointly invest with the private sector using alternative funding platforms, such as equity crowdfunding and peer-to-peer lending (P2P).
• Introduction of a property crowdfunding/P2P platform for first-time homeowners, regulated by the Securities Commission of Malaysia. The FundMyHome platform is developed by the EdgeProp and slated for launch in the first quarter of 2019.
• Introduction of a RM 3 billion (US$721 million) industry digitalization transformation fund with a subsidized two percent interest rate. This fund is intended for accelerating industries embracing smart technologies, such as robotics and artificial intelligence.
• Government-managed venture capital funds such as Malaysia Technology Development Corporation, Malaysia Debt Ventures, Malaysia Venture Capital Management, and Cradle Fund will be streamlined. Government matching grants will only be awarded to companies that can attract investments from the private sector.

Currency converted from Malaysian ringgit. Rate: US$1 = RM 4.16