E-Commerce

 

 

7 July 2006. As the world comes to rely ever more heavily on the rapid exchange of information over the internet, e-commerce is becoming a key feature of the global economy.

“It is encouraging that the Malaysian government has been quick to realise the importance of e-commerce, identifying it as the strategic driver for economic growth,” said Seah Siew Yun, Tax Director at Shamsir Jasani Grant Thornton, Malaysia.

Greater e-commerce adoption by Malaysian businesses will be vital in enhancing Malaysia’s position, and so the government intends to invest in further development of its existing cyber-cities as well as the promotion of new ones. The use of e-commerce is expected to accelerate to support this expansion of opportunities. The Ninth Malaysian Plan (9MP) states that the value of e-commerce transactions from the distribution trade sector alone is expected to grow at an average annual rate of 27% to reach MR 155 billion in 2010.

In a survey carried out by Grant Thornton in 2005, business owners in countries around the world confirmed the benefits from using e-commerce, with many businesses throughout Asia Pacific reporting increased efficiency and productivity through the use of e-commerce.

Gary James, Tax Partner of Grant Thornton Hong Kong said: “Given the results of our survey in 2005, and the desire of the Malaysian government to instil a ‘first class mentality’ in its people, the government is right to take a leading role in e-commerce development and to promote wider usage of e-commerce in Malaysia.”

Taxation and e-commerce

With the continued growth of e-commerce, not only in Malaysia but also in the rest of the world, the tax treatment of e-commerce continues to be a hot topic. As the revenue from e-commerce continues to grow, governments will want to tax their fair share and not allow a potential source of tax revenue to evaporate. However, there is a great uncertainty over taxation in the cyber world. This has great significance for both businesses and tax authorities, as huge tax planning opportunities are created.

“But just how do you tax a cyber-business or all those sales over the internet?” comments Gary James. “Well you can, although there are often practical difficulties in deciding where a business is carried on. In many countries, there are now established frameworks on the taxation rules for e-commerce transactions.”

Taking a few of the countries in the region as examples:

Businesses need to be clear about where taxation takes place and how – especially to avoid the risks of double taxation, or unintentional non-taxation. Planning in advance will help resolve some of these problems and ensure that businesses seize tax-planning opportunities that are available to minimize costs. The process could involve reorganising the business structure, redefining the value chain or restructuring the internal functions and processes in order to effectively participate and benefit from e-commerce.

“This is usually a balancing act involving consideration of the advantages and disadvantages of each option from both a commercial and taxation perspective. Where functions can be relocated to low tax jurisdictions tax savings can be found but it is essential that there is quality infrastructure and substance to the operation in the low tax jurisdiction. The potential tax savings must be balanced against issues of logistics, communications and infrastructure. For the attention span of the internet user is brief and delays in processing time can result in lost revenue without which there is no tax to minimise,” comments John Ross, Tax Partner of Grant Thornton Australia who is in Malaysia for a regional Grant Thornton tax conference.