KPMG : “Malaysia’s move to tax digital economy a bold move”

Commenting on the 2019 Budget that was announced by the Finance Minister YB Lim Guan Eng earlier today, Ng Sue Lynn, Executive Director of Indirect Tax at KPMG Tax Services, welcomed the proposal to tax imported services, saying:

“This is a welcomed move as it can ensure that local service providers such as architects,
graphic designers and software developers can compete on a more level playing field with
foreign service providers. Currently, foreign service providers providing similar services do not
need to charge Malaysian service tax, unlike the local service providers who are Service Tax
registered. Based on the proposal, the mechanism may be similar to the previous Goods and
Services Tax (GST) regime where the onus is on the recipient of the services (which are
businesses) to account, declare and report the tax. It remains to be seen what the reporting
mechanism is for businesses who are currently not registered under the Service Tax regime,”
said Ng.

The Finance Minister also mentioned that foreign suppliers who provide digital products and services to consumers will be required to register with the Royal Malaysian Customs Department (“RMCD”) from 1 January 2020.

Ng commented: “This move to tax the digital economy is in line with the intention of other
countries and it is a bold move as Malaysia will be one of the first to introduce such system.
There are further areas that need to be clarified such as how the foreign service providers will
register with RMCD, and what enforcement rules and reporting mechanism are in place. It is
noted that a new provision will be introduced in the Service Tax Act 2018 to cover this. As this
proposal is proposed to be effective from 1 January 2020, the RMCD has 1 year to study,
analyse and come up with an efficient mechanism.”

KPMG further notes that the Service Tax exemptions to specific services provided by registered businesses to other registered businesses will address the Service Tax cascading issue that has been the concern of a lot of businesses, since the Sales Tax and Service Tax was implemented on 1 September 2018.


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