6% tax on Spotify, Netflix, Steam and foreign digital service providers to be enforced on 1st Jan 2020

Malaysia digital tax

The digital service tax which was announced during the 2019 budget (#Belanjawan2019) will take into effect beginning 1st January 2020 at a rate of 6%. The Malaysian Deputy Finance Minister, Datuk Amiruddin Hamzah, had made the announcement after winding up the debate on the Service Tax (Amendment) Bill 2019 which was passed yesterday with amendments. This means digital services such as Spotify, Netflix and Steam will be taxed beginning next year.

Other countries apply higher tax rates on digital services

According to the Deputy Minister, the 6% rate was deemed to be the lowest compared to the rate imposed by other countries. He gave several examples such Russia where they introduced an 18% tax from 1st January 2017, Norway with a 25% tax from 1st July 2011 and New Zealand at 15% from 1st October 2016.

Does this mean prices for these services will increase?

The deputy assumes that the digital service providers will pick up the tab when the new tax is imposed. If they could comply with Russia, Norway and New Zealand, he doesn’t see any reason why they should refuse to comply with the rate in Malaysia.

“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.”

He emphasised that this isn’t a new tax. Local digital service providers are required to pay the tax and to extend this to providers that are based in other countries would level the playing field.

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“It’s not fair if only the local digital service providers had to pay the tax. This is not a new tax, it’s just having the scopes extended to providers in other countries,” he said.

According to Amiruddin, the Malaysian government has the power to enforce the law if the service providers are overseas as there is a government-to-government (GTG) cooperation among countries under the Organisation for Economic Cooperation and Development (OECD).

“This cooperation enables us to take legal action against foreign companies which refuse to pay the service tax,” he said.

It isn’t clear how this would impact local subscription. For some services such as Spotify, Malaysians are currently paying a much lower rate of RM14.90 per month for ad-free Spotify Premium while those in the US are paying US$9.99 (about RM40.93) per month.

But prices are increasing…

Even before this tax announcement, video streaming provider, Netflix, is reported to increase its subscription plans beginning next month. The standard plan which is currently priced at US$7.99 (about RM32.75) is expected to increase to US$8.99 (about RM36.85) per month, while the highest premium plan is expected to increase from US$13.99 (about RM57.32) to US$15.99 (about RM65.52) per month.

In a statement to the AP, Netflix says that “We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience.”

Singapore will be doing the same

On the same note, Singapore is expected to impose a goods and services tax on digital services that render their services from outside the country, this includes content and music streaming services as well apps and games.

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The tax on international digital services is set to come into effect from January 1, 2020.

The move, according to Singapore’s finance minister, is said to make the country’s tax system “fair and resilient”, Channel News Asia reported.


Alexander Wong