Withholding tax – best option for e-commerce

April 17, 2018 | By | Reply More

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KUALA LUMPUR: Imposing withholding tax on businesses in the digital economy could be the best option at a time when Malaysia wants to capture higher taxes on e-commerce transactions, according to tax experts.

Grant Thornton Malaysia’s head of tax advisory and international tax Daniel Woo said the withholding tax mechanism ideally should be the final tax but option should be allowed to register and file for net taxation.

“The current withholding tax provision may also need some adaptation, if not it cannot cover properly and not relevant to the digital economy,” he said at the Malaysian Tax Conference 2018 organised by the Malaysian Institute of Accountants and the Malaysian Association of Tax Accountants today.

The Inland Revenue Board’s (IRB) e-commerce division director Abdul Aziz Kechik concurred, saying that it is the best option for the time being.

“For withholding tax, they (businesses) don’t need to submit anything and we can straightaway tax them. With digitalisation, we want to broaden the withholding tax scope.”

He said IRB is still reviewing the e-commerce guidelines, but declined to comment further.

Woo opined the ideal withholding tax rate is between 10% and 15%.

“You cannot set too high or too low. If it is too high, the people will find ways to avoid it.”

He highlighted that the tax authority cannot take a general approach to impose the withholding tax on digital transactions, failing which will hinder the digital economy development.”

“We need to look at the conceptual and practical aspects in applying the withholding tax.”

With the imposition of withholding tax, foreign businesses must register with the local tax authority so that they can claim the credit to their home countries.

Meanwhile, IRB CEO Datuk Seri Sabin Samitah earlier said in his keynote address that the tax authority will strike a balance between supporting the new emerging digital economy and at the same time ensuring the right to tax and collect the right amount of tax.

“Tax authorities are looking at the best mechanism to tackle the (digital economy) issue, with the primary objective of safeguarding the tax base and revenue due to the country.”

The digital economy is projected to account for 45% of Malaysia’s gross domestic product by 2021 against a mere 7% in 2017.

Sabin also said that IRB is expected to contribute 42.6% to the country’s total budget needed this year, which translates into RM134.71 billion as announced in Budget 2018.

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