Digital Services Tax Laws in Malaysia: A Changing Landscape

Abstract

The COVID-19 pandemic has accelerated global e-commerce growth and consequently, online transactions have become the new norm. Unfortunately, such digitalisation of the economy has not been adequately captured by the current international tax system as it only requires multinational enterprises to pay tax where production occurs. Therefore, numerous countries have imposed the digital services tax (DST) as an interim measure to address the tax leakage issue due to the expansion of market coverage. DST targets foreign service providers which do not have a physical business presence in jurisdictions where their consumers are located. Nevertheless, the establishment of such a tax has brought about some challenges. Hence, this research examines the structure and operation of DST in Malaysia, as well as the challenges associated with its implementation while contrasting them with the European countries, being the pioneers in DST. The research employs a qualitative method through a doctrinal study of the legal framework that regulates the execution of DST, as well as published works on the subject. The data is then analysed utilising the content analysis approach. Specifically, the findings of this research identify the possibility of a changing landscape in the implementation of DST due to the two-pillar approach approved by the members of the OECD/G20 Inclusive Framework on the Base Erosion and Profit Shifting (BEPS) project. As a result, this research provides a foundation for further research that will analyse the relevance of DST in light of the recent development within the international tax system.