Tax for online businesses in Malaysia soon

“The Inland Revenue Board is doing a thorough evaluation and study to go into taxing individuals engaged in digital or online businesses as the income they earn is taxable,” Said Tan Sri Mohd Irwan Serigar Abdullah, secretary-general of the Treasury.

KUALA LUMPUR: The Government will be looking at ways to tax individuals engaged in digital or online businesses, such as Uber or GrabCar, to address its lost opportunity for revenue from a fast-growing segment of the economy.

“It will be a revenue loss for the Government if we did not do anything about it because going forward, more and more businesses will go into sharing of the digital economy,” he told reporters after delivering his opening address at the Public Sector Forum on Financial Reform for Economic Development in Asia here yesterday.

Themed “Driving Future Outcomes from Past Experience”, the two-day forum was organised by the Confederation of Asian and Public Accountants and the World Bank Group.

“In the tax department, we need to be vigilant and go into new areas as the economy transforms,” Irwan said.

“Policymakers need not only consider past experiences, but we also need to look into the future more carefully, especially with regard to how technology is taking form and changing the way we do things, and come up with policies to collect taxes from the new sources in that response,” he added.

Pointing to local Uber drivers as an example, Irwan noted a recent survey by the Land Public Transport Commission which indicated that part-time Uber drivers could earn an average income of RM7,000 per month. Without a proper framework, however, the Government would not be able to collect taxes from these local Uber drivers even though they fall within the tax bracket.

Irwan, however, said while there was no specific timeframe to implement the tax framework for online businesses as the policy was still being reviewed. He hoped to get it finalised by next year.

“The IRB has formed a division to address issues relating to Internet-based businesses, and it is now working with the Companies Commission of Malaysia (CCM) to study in detail and come up with the right approaches,” he said, adding that online businesses should register with the CCM so that the Government can track how much they are making.

“Internet businesses are growing fast and they are becoming important to everyone in society. But tax collecting agencies are finding it difficult to collect taxes from these new sources, so we need to devise new ways to address this, otherwise it will be revenue lost for the Government.”

Meanwhile, in his speech at the event, Irwan stressed that the Malaysian government remained committed to fiscal consolidation initiatives to strengthen its financial position towards achieving a balanced budget in 2020 and ensure long-term fiscal sustainability as well as resilience of the economy.

“In line with fiscal consolidation efforts, the Government has set several targets, which include the gradual reduction in fiscal deficit to achieve a balanced budget in 2020, ensuring annual operating surplus and capping the debt level at below 55% of gross domestic product,” he said.

“To date, several key fiscal consolidation measures have been implemented. They include subsidy rationalisation, adopting outcome-based budgeting, improving spending efficiency and undertaking stringent auditing, increasing tax compliance and reviewing tax incentives, as well as implementing the goods and services tax,” he added.

Irwan noted that fiscal reform would be essential to catalyse growth and balance primary balance deficits.

“It is crucial to conduct fiscal policy in a prudent way even under high levels of uncertainty and volatility in commodity markets,” he said.

Meanwhile, Irwan said the state-owned enterprises and government-linked companies (GLC) Act, or Soga, was still in formulation stage, and would be tabled in Parliament once it is ready.

Soga is aimed at championing the GLC reform, especially with regard to improving the governance of GLCs and ensuring compliance with its international commitments.

“Soga is in line with the Trans-Pacific Partnership agreement, as we want to protect our state-owned enterprises,” Irwan said.

“We believe that with the introduction of Soga, GLCs can continue to spur the domestic economy while remaining competitive locally and globally,” he said.