One of the features under that tax law is the introduction of “Internet tax” that will be imposed on Internet users at a rate of HUF 150 (approximately USD 0.60) for every gigabyte of data or part thereof. For example, downloading a movie in HD quality (8.5 GB) would attract a tax charge of approximately USD 5.
This proposal caused a huge uproar and received negative criticisms from the public and the industry players. It was even condemned by the European Union. Some people perceived this as a way for the Hungarian government to control the Internet and stifle free expression and access to information.
The Hungarian government was later pressured into changing its stance slightly. They did so by stating that the new tax will be capped at HUF 700 (approximately USD 2.8) for home users and HUF 5,000 (USD 20) for business users, with Internet Service Providers (“ISPs”) expected to pick up the rest of the tab. That did not help much as the public still believed that the ISPs will pass on the costs of complying with this law onto the consumers eventually.
However, things began to change when the government realized that Internet services are a potential source of tax revenue, especially in the e-commerce sphere where the world is becoming one big marketplace. As a result, many governments have amended their tax law to accommodate to this new way of doing business.
This law bans federal, state and local governments from imposing a tax on internet access and other discriminatory Internet-only taxes such as bit tax, bandwidth tax and email tax. The law also prohibits multiple taxes on e-commerce, although it does not exempt sales tax made through online transactions.
A tax on internet access is not the same thing as a tax on internet sales. The former is what the Hungarian government was trying to introduce, whereas the latter is becoming a norm in many parts of the world.
E-commerce is defined to mean any commercial transaction conducted through electronic networks including the provision of information, promotion, marketing, supply order or delivery of goods or services although payment and delivery of such goods and services may be conducted off-line.
The IRB Malaysia acknowledged that as there are no specific provisions under the Income Tax Act 1967 (“ITA”) that address e-commerce transactions, hence it is hoped that the E-Commerce Guidelines will provide the much-needed guidance to clear the confusion as to whether online businesses need to pay income tax or not.
The E-Commerce Guidelines adopts the principle of neutrality where both conventional and online businesses are subject to the same tax treatment under the ITA. What this means is that there is no difference between a seller who sells goods in a physical shop and a seller who sells goods on a website (online shop) – both of them need to pay income tax.
Where business operations are carried out in Malaysia, the income attributable to those business operations is deemed to be derived from Malaysia. Whether an income is considered to be derived from Malaysia or not is subject to the business operations test i.e. whether there are substantial business activities being carried out in Malaysia.
The Sales Tax Act 2018 governing the manufacturing and oil and gas industries; and the Service Tax Act 2018 on selected service providers. The current version of SST is an enhanced version of the Sales Tax Act 1972 and Service Tax Act 1975. The tax rate for Sales Tax is 10% while the Service Tax is 6%.
Unlike GST which is a multi-stage indirect tax, SST operates on a single-stage basis, which means that the sales tax or service tax is imposed only once at the manufacturing stage (sales tax), importer stage (sales tax) or service provider stage (service tax).
For example, manufacturing will add in sales tax of 10% on manufactured goods in the invoice to the wholesaler. For the wholesaler, the sales tax is part of the inventory cost. Any subsequent sale from wholesaler to distributor or distributor to customers will have no sales tax imposed on the invoice issued.
However, we can assess the implication of SST based on the broader interpretation of the current SST legislations.
When a seller is selling an item he bought from a supplier, this is deemed as trading in nature hence no sales tax implication.
When a company is providing an online platform for users and collecting any form of remuneration, it will be considered as providing a service hence service tax will be imposed.
In essence, when a local company engaged overseas service providers, he/she will need to account and file for the service tax on behalf of the overseas service providers. This amount should be remitted to RMCD One month from the end of the month in which the trigger point falls (payment made or invoice received).
This will have an impact on digital service providers (e.g. Spotify, Netflix etc.). These service providers are required to register with RMCD if the revenue from Malaysia exceeds RM500,000. However, it remains a big question on how the Malaysian Government could get these foreign entities to sign up and start charging their customer the Digital Service Tax.