It's official: Malaysia will start taxing Spotify, Netflix, Steam, and other foreign digital service providers next year

The proposed tax to be imposed on foreign digital service providers in Malaysia comes into effect from January 1, 2020.

Tabled last year at the Budget 2019 seating by Finance Minister Lim Guan Eng, the tax has been passed and fixed at a rate of 6% per annum.

Deputy Finance Minister Datuk Amiruddin Hamzah made the announcement after tabling the Service Tax (Amendment) 2019 Bill in the lower house of Parliament. Amiruddin echoed Guan Eng's reasons for the tax, and that's to "level the playing field" between local and foreign companies.

"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 lawmaker said yesterday.

Just to be clear, the tax is not imposed upon users of said services but on service providers like Netflix, Spotify, Steam, and others. But of course, there's a possibility that providers would increase prices for their services after the tax kicks in.

Comparing to countries like Russia and Norway (digital tax in both countries are set at 18% and 25% respectively), Amiruddin said Malaysia is one of the lowest and as such, it shouldn't be a problem for companies to pay.

Under the Bill, tax defectors can be fined up to RM50,000, imprisoned for a term of up to three years, or both, upon conviction. The tax is applicable to any person or organization, of whatever nationality or citizenship, as long as they're beyond Malaysia's territory.

Malaysia follows neighboring country Singapore's move to introduce tax for digital services. Like Malaysia, Singapore will also start on 1 January, 2020.