The Muamalat Newsletter Vol. 1 2024

FEM eNewsletter | June 2024 33 individuals were online, with household computer access at 88.3% and mobile access at 99.6%. Individual internet access peaked at 96.8%. The COVID-19 pandemic accelerated this digitalisation, as lockdowns pushed both public and private sectors to rely heavily on cyberspace for economic and social activities. Surveys by the Malaysia Communications and Multimedia Commission (MCMC) revealed that internet usage was primarily for social networking, with more than 90% for messaging (IDEAS, 2022). By 2022, Malaysia’s digital economy experienced significant growth, particularly in e-commerce and digital finance. The e-commerce sector saw a Gross Merchandise Value (GMV) of RM68 billion, reflecting strong consumer demand and the opening of both B2C and untapped B2B markets. Digital finance also saw impressive growth, with e-wallet transactions reaching RM69 billion, which is projected to rise to RM95 billion by 2025. This rapid adoption of digital payment solutions indicated a shift towards digital transactions, creating a more connected economic environment. The digital finance sector’s expansion underscored the increasing trust and reliance on digital finance among consumers and businesses (MIDA, 2022). In the first quarter of 2023, e-commerce in Malaysia continued to boom, growing by 10.4% and reaching US$62.511 billion (RM291.7 billion). This growth was primarily driven by the manufacturing and services sectors, which showedwidespread adoption of online commerce. The Malaysia Digital initiative, launched in July 2022, aimed to succeed MSC Malaysia by driving digital transformations and attracting global investments. The Malaysia Digital Economy Corporation (MDEC) facilitated RM46.22 billion in digital investments in 2023, exceeding targets by 54%, and created 22,258 high-value jobs. Digital exports grew to RM3.18 billion, an 81% increase from 2021, with exports to 17 countries led by Indonesia, the Philippines, and Vietnam. Budget 2023, guided by Malaysia Madani, aimed to accelerate enterprise digitalisation and automation, with significant investments and funding to support this goal. Key allocations included RM1 billion from Bank Negara toassistMSMEs, RM100million for small traders, RM6 billion from Bank Pembangunan Malaysia Berhad, RM1.5 billion investments in local startups, RM20 billion in loans to SMEs, RM725 million for digital connectivity, and initiatives in creating more data centres. These efforts collectively aimed to bolster Malaysia’s position in the global digital economy and ensure sustainable economic growth through technology and innovation (The Edge, 2024). Taxing the Digital Economy: Global Approaches and Challenges The rise of the digital economy has created complex challenges for tax authorities worldwide. Traditional tax frameworks designed for a brick-and-mortar economy have struggled to capture the value generated by highly digitalised business models effectively. In response, many governments are exploring new approaches to taxing the digital economy, such as digital services taxes (DSTs) and other targeted measures (Santos & Lumba, 2020; Alvarez & Marsal, 2024). At the forefront of addressing these challenges is the Organisation for OECD, which has led the Base Erosion and Profit Shifting (BEPS) project. The OECD advocates for a coordinated, multilateral approach to ensure fair and effective taxation of the digital economy. Their Two-Pillar solution, endorsed by the G20, includes Pillar One for reallocating taxing rights and Pillar Two for