The Pakatan Harapan government is reportedly considering a new tax on online businesses ahead of Budget 2019 that will be tabled in November. — Shutterstock.com pic via AFP

KUALA LUMPUR, Sept 19 — The Institute for Democracy and Economic Affairs (IDEAS) warned the government today that introducing a new digital tax could increase prices for consumers and businesses and affect startups and small and medium enterprises (SMEs).

The think tank also said there was no definitive evidence that digital companies paid less tax than traditional companies, stressing that double taxation must be avoided.

“Although it could increase revenue in the short term, a new digital tax in Malaysia would increase the costs of digital goods and services, in turn increasing prices for Malaysian consumers and businesses.

“This could slow the development of the digital economy in Malaysia, particularly for new startups and SMEs,” IDEAS said in a statement.

The Pakatan Harapan government is reportedly considering a new tax on online businesses ahead of Budget 2019 that will be tabled in November.

The proposed new taxes, according to IDEAS, are either “direct” taxes that target the profits of foreign digital companies doing business in Malaysia or “indirect” taxes that impose consumption taxes like the Sales and Services Tax (SST) on foreign companies selling digital goods and services here, paid for by users.

“The case for an ‘indirect tax’ on digital activity (i.e. applying SST to digital purchases from abroad) is less controversial than a new ‘direct tax’ and many countries have already taken this approach.

“Doing so in Malaysia would also level the playing field between foreign and Malaysian companies, as local digital firms are already subject to SST. It would however still increase the cost of digital goods and services in Malaysian and drive up prices. Also, with the recent switch from GST (Goods and Services Tax) to SST, implementation would have to be handled with care,” said IDEAS.