It’s about time for a level playing field for both foreign and local service providers
The Digital Service Tax, which was tabled last year at the Budget 2019 seating has been passed and set at a fixed rate of 6% per annum. This new taxation will be imposed on foreign digital service providers and will come into effect at the turn of the new year from January 1 2020 onwards.
This means that the likes of Netflix, Spotify, Steam and other foreign digital service providers will have to fork out a bit more money starting 2020 onward, in a move that local online service providers are without a doubt welcoming.
The announcement was made by Malaysian Deputy Finance Minister Datuk Amiruddin Hamzah after the tax amendment was tabled in the lower house of Parliament. Echoing Finance Minister Lim Guan Eng’s reasons for the tax, Amiruddin said that this is important in order to level the playing field between local and foreign providers.
“The digital tax is to provide a level playing field among local and foreign companies, as well as between online and offline service providers,”
The rate set for the digital service tax in Malaysia is actually a lot lower than that of other countries such as Russia, where it’s set at 18% and Norway, where it’s set at a whopping 25%. Taking this into account, Netflix, Spotify and the like should have no problems absorbing the cost of the tax without having to increase the price of subscriptions.
But ha ha the joke is probably on us because odds are, that’s not going to be the case. It seems like service providers are always looking for an excuse to increase their monthly subscription rate. I’m fairly confident that this taxation will be cited in the statement they release for their next price hike. Netflix has already increased the price of subscription for its users in the USA so it wouldn’t be a surprise if the prices in Malaysia— where subscriptions in general are already considered cheap, reflect that. This is all just MY speculation though.
You see, on the one hand, we have our Finance Minister Lim Guan Eng with some words of assurance for all of you.
“They (digital service providers) should have no problem to pay…because it’s only 6%. If they can comply with Russia, Norway and New Zealand, I don’t see any reason why they should refuse to comply with the rate in Malaysia.”
But on the other hand, we have iflix’s Global Head of Tax Sam Barrett pretty much saying what i’m saying.
“It is likely though that the retail price of subscription to overseas providers’ services such as Hooq and Netflix will increase as a result of this new tax, unless of course they (the companies) decide to bear the additional tax cost themselves thus reducing their profit margins,”
Ugh why you gotta be so pragmatic, Sam??
As is always the case, we’ll just have to wait and see. It isn’t all doom and gloom though. There are winners in this. For one, the Government getting more money is always good. This tax is long overdue (Russia implemented it back in 2017). Even Singapore are introducing a tax for digital services and will also start on the 1st of January 2020. We’re merely keeping up with the times here!
Then we have local video streaming platforms such as iFlix who probably feel like 1 January 2020 can’t come soon enough. Local platforms have actually been paying the tax this whole time so this technically isn’t a new tax but more a broadening of its scopes to include foreign providers as well.