The Muamalat Newsletter Vol. 1 2024

FEM eNewsletter | June 2024 34 a global minimum tax. Countries worldwide are currently developing and implementing this framework (Lucas-Mas & Junquera- Varela, 2021). Despite these efforts, achieving a global consensus on digital taxation has been challenging. Some countries, frustrated by the slow progress at the OECD level, have opted to introduce unilateral measures, such as digital services taxes, targeting the digital economy directly. This has led to a global patchwork of digital taxation rules as nations strive to ensure that digital businesses contribute their fair share to tax revenues (Alvarez & Marsal, 2024). The definition of the digital economy varies across different frameworks. The China Academy of Information and Communications Technology divides it into industrial digitisation and digital industrialisation. Industrial digitisation involves integrating digital technologies into other industries to enhance efficiency, while digital industrialisation focuses on digital product production and innovation (Shi, 2022). The International Monetary Fund (IMF) distinguishes between the “digital sector,” which includes core digital activities like ICT goods and services, online platforms, and the sharing economy, and the “digital economy,” which refers to the broader digitalisation of economic activities (Mullins, 2022). For tax policy purposes, the emphasis is on ensuring that digital transactions, income, and profits are adequately taxed rather than isolating the digital economy from other sectors. The OECD’s Inclusive Framework proposes new international tax rules that apply across all industries, not just the digital economy. However, specific definitions might be necessary for implementing digital services taxes, where countries must identify the types of digital services subject to taxation (Mullins, 2022). In 2021, the OECD/G20 Inclusive Framework on BEPS saw 136 countries agreeing to the Two- Pillar solution. Pillar One reallocates some taxing rights fromamultinational enterprise’s home country to market jurisdictions where it operates, regardless of physical presence. Pillar Two imposes a minimum tax rate of 15% on certain multinational enterprises. The responses from countries like the US, Singapore, India, and several European nations have varied, reflecting digital taxation’s complexity and diverse interests (Evans et al., 2022). To date, efforts to create a unified approach to taxing the digital economy have been inconclusive. While the OECD and G20 have made significant strides in developing a model for member jurisdictions, consensus remains elusive. Consequently, many countries have adopted unilateral measures to address the taxation challenges posed by digitalisation, leading to a diverse and evolving global landscape of digital taxation (Athanasaki, 2020; Evans et al., 2022). Tax on Digital Economy in Malaysia Addressing the tax challenges posed by the digital economy is complex. In Malaysia, both direct and indirect taxation strategies are being used to modernise the law on taxes for the digital economy. Over the past five years, the Malaysian government has introduced or proposed various taxes targeting the digital economy to ensure an adequate taxation framework and to level the playing field for local businesses. These chronological measures illustrate Malaysia’s strategic efforts to adapt its tax framework to the evolving digital economy, ensuring fair taxation and fostering local business