Five ways to prevent double taxation from digital tax

KUALA LUMPUR: The ministry of finance (MoF) has announced five measures to prevent a double taxation after a 6% service tax is implemented on imported digital services from tomorrow.

The first measure is by extending the group relief facilities to the importation of eligible taxable services by local service providers, belonging to the same group of companies providing the same imported taxable services.

In other words, local service providers need not be taxed on taxable services imported from overseas service providers in the same group, said the MoF in a statement yesterday.

The second measure is based on the “self-recipient accounting” method — with exemption from accounting and paying the service tax on importing professional and advertising services for business-to-business (B2B) transactions when the imported taxable services are the same as those provided by the company.

Thirdly, local service providers, having paid the service tax to foreign service providers for digital services for business-to-consumer (B2C) transactions, can claim a refund from the Royal Malaysian Customs Department, with an offset based on the actual amount of service tax paid.

The MoF also said long-distance education services for preschool, primary and secondary education, as well as tertiary education including vocational and professional training provided online by local or foreign service providers, are not subject to the service tax.

Neither are online services such as e-newspapers, educational, technical, scientific, historical or cultural journals and periodical reading materials, it said.

A 6% service tax was imposed on imported B2B services from Jan 1, 2019. A 6% service tax on imported B2C digital services starts tomorrow.

“The service tax on imported digital services is to ensure a fair treatment for local service providers and to create a level playing field for domestic and foreign service providers, on providing taxable services to businesses and consumers in Malaysia,” the ministry said.

“At the same time, the government acknowledges the price increases and a cascading effect from a double taxation on consumers. In this regard, the government has put in place several measures to ensure service providers and local consumers do not face a double taxation.”

Take note that the digital tax only applies to services and not goods.

Source: TheEdgeMarkets