Federal govt urged to devise comprehensive framework for e-commerce tax

Datuk John Lau Pang Heng

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KUCHING, June 26: The federal government needs to come up with a comprehensive framework for e-commerce tax including a tax regime before jumping the gun on imposing tax on online businesses.

Sarawak Patriots Association (SPA) chairman Datuk John Lau, in a media release, pointed out that imposing e-commerce tax will be a very complicated process and questioned if the Malaysian government is ready for the implementation.

“The growth of e-commerce is growing rapidly in Malaysia but more importantly, the federal government needs to find ways to assist and strengthen this sector and entrepreneurs first before talking about collecting taxes.

“Many of those dealing in e-commerce treat it as a second income to supplement their present main income which could be insufficient to provide for the family,” he added.

Lau was commenting on Prime Minister Tun Dr Mahathir Mohamad’s suggestion at the 34th Asean Summit gala dinner in Bangkok on June 22 to implement e-commerce tax given how the growth of online businesses has exceeded that of businesses utilising traditional models such as physical retail stores.

“SPA is of the opinion that all online businesses should be exempted from tax for five years.

“We are also concerned about the implementation including how the government will be able to track the e-commerce activities and transactions,” Lau said.

He emphasised that there were still many details on the implementation that needed to be considered including territorial basis of taxation of which the tax is imposed on the income whether accrued in or derived from Malaysia, or received in Malaysia from outside Malaysia.

“However, there exists some difficulties in applying this principle to online businesses as it deals with electronic borderless transactions and not trading of physical goods and services.

“It eventually comes down to whether the e-merchant is trading in Malaysia or with Malaysia. If an e-merchant is not a Malaysian tax resident then (s)he should not be subjected to tax in Malaysia on income derived from an e-transaction with a Malaysia customer, unless the transaction is carried out through a permanent establishment in Malaysia.

“Similarly, an e-merchant who is a Malaysian tax resident can avoid taxation in foreign jurisdictions by not establishing a permanent establishment in those jurisdictions,” he added.

In this context, Lau said it was important to understand what constitutes a permanent establishment and what does not.

“It is possible for e-commerce owners to be tax residents in more than one jurisdiction thereby resulting in double taxation of income,” he said.

Meanwhile, Dr Mahathir said that online busines has been affecting other types of businesses and governments have been collecting less taxes as many retail stores have been shutting down, as many goods can be bought online now.

He added that taxation will assist governments in gauging the amount of profit being made by online businesses.

Previously, plans to impose the Goods and Services Tax (GST) on digital services by foreign providers were announced during the premiership of former prime minister Datuk Seri Najib Tun Razak in 2017.

However, the tax was scrapped following the takeover by Pakatan Harapan (PH) administration following their victory at the polls on May 9 last year. — DayakDaily