Digital tax developments in South-East Asia: Malaysia and Singapore

Taxamo rounds up the latest developments in relation to potential digital tax rule changes across the South-East Asia region.

Mar 27, 2020

In a taxation first for South-East Asia, Singapore and Malaysia will tax cross-border digital service supplies from the start of 2020. These moves follow taxation trends from across the globe as tax authorities move to close loopholes that have developed as the digital economy prospered. 

Singapore and Malaysia become the first South-East Asian nations to introduce such tax rules on the cross-border supply of digital services but others close by have already done so. Since Japan (in October 1, 2015); South Korea (July 1, 2015), followed by Taiwan and India less than two years later (May 1 and July 1, 2017, respectively), more and more countries in Asia - particularly South-East Asia - are investigating the possibility of extending their consumption tax rules to cover supplies from foreign digital service suppliers. 

Here we round up the latest developments across South-East Asia:

Malaysia

Implementation date: January 1, 2020 

Malaysia confirmed the introduction of a tax on imported digital services in its 2019 budget. Malaysian finance minister Lim Guan Eng announced the changes during his budget speech saying: “For imported online services by consumers, foreign service providers will be required to register and remit related service taxes to the Malaysian customs, effective January 1, 2020.”

These imported services a tax rate of 6% must be applied to sales to consumers in Malaysia.

The country's new Deputy Finance Minister Datuk Amiruddin Hamzah had previously indicated such a move at the launch of a new World Bank report titled 'Malaysia's Digital Economy: A New Driver of Development'. At the launch Amiruddin Hamzah stated: “This will definitely be a matter that we will look into deeply. We will come out with a new mechanism, but we are still studying it and we will impose something for them. If we put this matter (digital tax) aside, I think the nation will be losing revenue.”

More here.

Singapore

Implementation date: January 1, 2020 
From January 1, 2020, foreign-supplied digital services will be subject to Singapore GST. The extension of Singapore’s GST system to cover these services will have a significant impact on foreign-based service providers with customers in Singapore. From the start of 2020 these providers will need to collect and settle Singapore GST.

From this date, these cross-border B2C and B2B digital service supplies will be subject to Singapore GST at the current rate of 7%. In implementing these rules Singapore will mirror popular tax rule changes that have been introduced across the globe as the taxation of the digital economy gains popularity.

More here.

Vietnam

A draft tax law in Vietnam that would have a significant effect on cross-border eCommerce (previously planned for July 1, 2020) is unlikely to be implemented any time soon.

Back in June 2019, Vietnam adopted the ‘Law on Tax Administration’. Contained within this regulatory update were plans for foreign eCommerce companies to register for Vietnam VAT purposes. These plans were due to come into effect on July 1, 2020. 

Place of consumption rules are already in place in Vietnam. However, a 10% tax is currently withheld at source by the Vietnamese party to the contract. This is known as a ‘Foreign Contractor Tax’ of which half is VAT and half is an income tax.

More here.

Thailand

Thailand is moving closer to taxing e-commerce in 2020. Thailand's Council of State and Revenue Department have been deliberating over a new e-commerce tax bill for some months now with no exact introduction date confirmed. It was previously expected to come into effect on January 1, 2020. If passed the move could recoup between 3 billion and 4 billion baht (circa USD$98m to $131m) per year for the Thailand Revenue Department. 

A Reuters report in August 2019 quoted Ekniti Nitithanprapas, the director-general of Thailand's Revenue Department, that a VAT on electronic businesses would be introduced in 2020. There was no elaboration on the exact date of such an introduction. 

According to a previous report - in The Bangkok Post back in April 2019 - a draft bill aimed at taxing "digital platform operators" is already being deliberated by the Thai Council of State and the Revenue Department.

Back in April 2018, Thailand’s Revenue Department started the process of communicating with stakeholders who provided important feedback to a public hearing held in relation to the proposed legislative change.

Indonesia

It is clear that Indonesia is on the cusp of introducing a tax on the digital economy. At the March 2018 G-20 gathering in Buenos Aires, Argentina, Indonesia’s Finance Minister Sri Mulyani Indrawati urged international cooperation in attempts to tax digital giants such as Google, Facebook, Twitter, Amazon, Uber, Lazada and Grab.

Sri Mulyani also raised the issue of unfair competition between digital companies, particularly in e-commerce, and conventional ones, particularly in terms of tax treatment.

“All finance ministers face similar technical issues on how to collect {…} fair taxes in the digital economy,” she said.

In April 2018, at the 32nd ASEAN Summit in Singapore, Indonesia’s Minister of Trade Enggartiasto Lukita followed up on his colleague’s G-20 urgings by proposing a tax on goods and services offered through electronic commerce. According to Antara News the goods and services mentioned will include (among others) “e-books, digital music, accounting services, and architecture services.”

We will, of course, keep you updated on all developments in Indonesia. 

Philippines

Philippines has shown interest in amending their taxation rules but no concrete plans have been revealed. As far back as 2016 it was revealed that the Philippines Bureau of Internal Revenue (BIR) was drawing up plans aimed at taxing the digital economy.

The services covered in any potential piece of legislation would attract value-added tax (VAT), the current VAT rate in the Philippines is 12%.

The BIR has been set the task of collecting P2.026 trillion (circa USD$42.6 billion) in taxes this year, P2.315 trillion (circa USD$48.6 billion) in 2017, and P2.558 trillion (circa USD$53.8 billion) in 2018.

Taxamo content is created for guidance only, please consult your local tax advisor.

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