Digital Tax Is Coming! Don't Panic, Here's What You Need To Know

The digital tax is set to affect major online services such as Spotify, Netflix, and Steam. But will it affect our pockets?

Just yesterday the Malaysian Parliament passed the digital tax bill, which will be enforced from January 1 2020. The 6 percent tax will not only be imposed on entertainment services such as Spotify, Netflix and Steam, but also other online services such as Adobe Cloud and even Google services! 

It didn't take long for most Malaysians to lament and comment, "We're being taxed again?!" and suggest pirating because it's easy to see this report as a sign of harder times ahead. After all, our favourite online services are being taxed!  

If you're one of those thinking that way, breathe! It's going to be okay! Well, at least for now, because to put it simply the tax doesn't directly affect users. In fact, if you read the report carefully it states that the tax is on the digital service providers themselves! 

Before we can explain why this is so, you need to know a bit more about digital tax and what it is.

What is the tax for and do we need it?

To answer the latter first, yes! Think of it this way, when someone comes down to Malaysia to do business, they have to pay corporate tax to the government for their service. Even Malaysians doing business here have to pay the same tax for it! So it's only fair that even if it is done online, anyone who is doing business with and to Malaysian residents should also be taxed. 

This isn't something the current government has been planning alone, it's actually been in the works since the previous government back in 2017. They have long been made aware that they're losing out on a segment that is actually worth "billions of ringgit" that could be used for the betterment of the country. Yikes!  

It's also important to note that Malaysia isn't the first country to implement digital tax. In Asia alone, Taiwan, Japan, Bangladesh, and even South Korea have all implemented digital tax with varying percentages. So far Malaysia is the second lowest at 6%, the lowest being 5% in Taiwan.

The tax isn't you! But...

Some of these countries do push the digital tax on to the users. Japan is a good example, where if you sell a product worth 1,000 yen in Japan, the customer will actually have to pay 1,080 yen, and that 80 yen is meant to be filed through the tax agent. 

But in cases where the service provider should be paying tax, the government of these countries creates an online system for online services to register and pay their taxes via the system. This is likely what Malaysia will be doing, as it's clear that the tax is not on users. 

So all in all, the burden lies fully on the service providers! Right? 

Well, yes. But that doesn't mean all service providers will merely absorb the cost, as some may deal with the increase of cost by increasing their prices instead. By how much, we still don't know, though based on calculation on services alone the increase looks to be as much as  MYR 3 for Netflix, and about MYR 1.40 for Spotify family users.  

No matter what, the word tax is ugly and brings a lot of bad connotations. Even if it's meant for the better of us all, it's hard to not feel the hit in our pockets. But if it’s legal, it supports services and even our country for the betterment of all, this should be seen as a good thing. As long as business practices are legit, this digital tax may actually be for the best of all.