WTO REGIONAL SEMINAR ON ELECTRONIC COMMERCE
Geneva, Switzerland  22 April 2002
Revenue Implications Of E-Commerce
Government and Private Sector Experiences
MALAYSIA
Presentation by:
Suhaimi Nordin
Senior Manager - Borderless Marketing / E-Business
Multimedia Development Corporation
suhaimi@mdc.com.my
Agenda

Background – Overview of Malaysia’s
Broad Vision and Strategy

E-Commerce – The Scenario

Implications / Challenges of E-Commerce
(The Malaysia Experience)

Closing Remarks
2
VISION 2020
Vision 2020 – a national vision of creating a
developed nation in our own mould
• Characteristics of a Vision 2020 society:
– Strong moral and ethical values self-regulating
and self-managing empowered through
information and knowledge based on the concept
of the dignity of human-kind
• Characteristics of a Vision 2020 economy:
– Robust and resilient competitive and dynamic, but
with fair and equitable distribution of wealth
3
Vision of Knowledge-Malaysia by year 2020
• Value creating
knowledge
products and
services
• ICT as a sector
and information
as a commodity
Values-based
Knowledge
Society
Economic
• Competitive
Knowledge
Economy
2020
Knowledge
Society
Information
Society
Social
• Access to
information
• United, moral and
• Culture of a life
long learning and ethical society
innovation
• Sustainable
quality of life
4
Multimedia Super Corridor’s Vision – Conceived
As the Next Engine of Growth for Malaysia
The MSC was set up based on:
•
The recognition that Malaysia was losing its
comparative advantage in its traditional
economic sectors;
•
Need to drive the economy towards higher
productivity through technology and high
value-added economic activities;
•
Knowledge
Economy
and
converging
technologies presented the best opportunities
for socio-economic transformation.
•
The need for the adoption & application of ICT
to enhance national competitiveness and to
help bridge the Digital Divide.
5
The MSC Strategy
Go Global
Create the ideal multimedia
environment to attract world-class
companies to use MSC as a hub
Enhance
domestic
productivity
MSC
STRATEGY
Create value from
Information Age
businesses
Catalyze a highly competitive
cluster of Malaysian multimedia/IT
companies that become worldclass over time
Lead
Regional
6
The MSC – More Than Just a Technology Park
KLCC
• World class infrastructure and next
generation 2.5 - 10 Gb
multimedia network
• MDC - a premier onestop shop to facilitate
and promote the
development and
investment in the MSC
SHAH ALAM
ED ER AL HI
COUNTRY
HEIGHTS
L
• 15 x 50 km Corridor
South of Kuala Lumpur
KLANG
• Special Cyberlaws,
PELABUHAN
policies KLANG
and practices
tailored to enable
smart partners to
achieve maximum
benefits of multimedia
PETALING JAYA
KAJANG
SEMENYIH
TELOK
PANGLIMA
GARANG
BANDAR BARU
BANGI
BERANANG
PULAU INDAH
AIRPORT CITY
A
AY
PULAU CAREY
BANTING
TELOK
DATOK
BANDAR SALAK
TINGGI
BANDAR BARU
NILAI
KLIA
SEPANG
SEREMBAN
PORT DICKSON
7
MSC Flagship Applications
Smart Schools
Multipurpose Card
Electronic Government
OBJECTIVES
To Improve:
• Access - any time, any
where, any means
Telehealth
• Convenience – inline
to online
R&D Cluster
• Efficiency
Borderless
Marketing Centre
E-Business
Worldwide
Manufacturing Web
8
Progress To-date
• 670 MSC Status companies, 50 world class
• Government Multi-Purpose Card (GMPC) Flagship
Application Roll-Out
• Growing investments in technology and high
value-added economic activities
• Rapid growth in sales and exports
• New knowledge-based employment opportunities
created
• Growth in institutions of higher learning and
supply of knowledge workers
• Growth in SME participation
• Spin-offs to economy including productivity
increases
9
World Class Companies With Regional Initiatives in
the MSC
10
Other World Class Companies in the MSC
11
The MSC Vision: From Here To 2020
Phase 2
Phase 1
Successfully create
the Multimedia Super
Corridor
1996
• 1 Corridor
Link the MSC
to other
cybercities in
Malaysia and
worldwide
Phase 3
Leapfrog
into
leadership
in the
Knowledge
Economy
Transform
Malaysia into
a knowledge
society
2003
2010
• Web of corridors
• All of Malaysia
2020
• 50 world-class
companies
• 250 world-class
companies
• 500 world-class
companies
• Launch 7 flagship
applications
• Set global standards
in flagship
applications
• Global test-bed for new
multimedia applications
• World-leading
framework of
cyberlaws
• Harmonized global
framework of
cyberlaws
• International
CyberCourt of Justice
in MSC
• Cyberjaya as world• 12 intelligent cities
leading intelligent
• 4-5 intelligent cities
linked to global
city
linked to other global
information highway
cybercities
12
Agenda

Background – Overview of Malaysia’s
Broad Vision and Strategy

E-Commerce – The Scenario

Implications / Challenges of E-Commerce
(The Malaysia Experience)

Closing Remarks
13
E-Business Within MSC Status Companies
Indicator
MSC Status Co. directly
involved in E-Commerce
Businesses / No of MSC
Status Companies
1997
1998
1999
2000
2001
2002
Forecast*
6
20
34
86
138
245*
94
197
300
429
621
700*
Percentage of ECommerce related
businesses
6%
10%
11%
20%
22%
35%*
Companies with own
transaction capabilities
0
1
3
15
33
50*
Developing solutions to
enable E-Commerce
6
19
32
71
105
195*
14
E-Business Within MSC Status Companies
There are 138 / 621 (22%) MSC Status Companies which are
directly involved in E-Business / E-Commerce businesses.
(As of 31 Dec 2001)
33 (15 in Yr 2000) companies directly undertakes
E-Commerce / E-Business with transaction
capabilities
24%
76%
Solutions Provider
23
Financial
19
• E-Business software /
applications development
Fulfillment
18
Software Apps Dev
16
• Content Development
Portal Dev
12
• EC Technology Providers
and/or System Integrators
R&D Apps
10
CRM
6
• EC Consultancy Services
Travel/Hotels
6
• EC Training
Manufacturing/ERP
5
Web Hosting
5
Insurance
3
Healthcare
3
105 (71 in Yr 2000) companies develop and
implement e-solutions to enable their
customers to undertake E-Commerce
Source: MDC
No. of Companies With
Industry Focus
Others
12
15
asiatravelmart.com
Highlight:
• AsiaTravelMart is a one-stop travel
shop for hotels, air tickets, tour
packages and other travel products
• Offers more than 60,000 products
from over 3,000 travel suppliers in
more than 100 countries
• Also, offers mobile-commerce
transactions to WAP users (world’s
first).
• Awards, including PATA Gold 2000,
Internet World Asia Industry Award,
PIKOM Award and APMITTA Award
16
SMEs - (smarttransact.com)
Highlight:
• One Stop powerhouse for ECommerce solutions: providing a
complete set of software,
infrastructure and services.
• Established in 1999 with 3 staff
and has grown to 130 staff
(March 2001)
• Recorded revenue of US$3
million (US$ 1 million profit) –
March 2001
• 95% of revenue came from
overseas
• Clientele spread worldwide
including Ireland, U.S and Hong
Kong
• “Internet Company of the Year” –
17
Malaysia Internet Awards 2000
SMEs - (watchesplanet.com)
Highlight:
• Malaysian watch e-tailer
(B2C)
Watches are Duty-Free items
• Started in 1998 with a capital
of US$65,800, Year 2000
sales was US$1.1million.
• Offers over 5,000 watches
from 60 brands. Price
average US$100 – US$2,000
• 75% customers from North
America
18
Growth of Internet Subscribers in Malaysia
(1995-2005)
(‘000 million)
Projected growth
7,000
An Internet penetration of 20% of
population will spur the growth of
E-Commerce in Malaysia
6,000
6,005
5,525
4,837
5,000
4,225
4,000
3,111
3,000
1,852
2,000
892
1,000
442
25
90
'95
'96
210
0
'97
'98
'99
'00
'01
'02
'03
'04
'05
Year (1995 – 2000)
19
Source : MECRA (TMnet, Jaring, MaxisNet, TimeNet), PIKOM, MDC, MECM
Total E-Commerce Revenue Growth for Malaysia
(1997 – 2005)
eCommerce Revenue continue to grow US$384
million in 2000 to US$9.4 billion in 2005
10,000
US$9,336.2b
9,000
8,000
US$million
7,000
6,000
5,000
4,000
3,000
US$675.6m
2,000
US$383.5m
1,000
0
1997
1998
1999
2000
2001
2002
Source: IDC Internet Commerce Market Model, IDC 2001
2003
2004
2005
20
Agenda

Background – Overview of Malaysia’s
Broad Vision and Strategy

E-Commerce – The Scenario

Implications / Challenges of E-Commerce
(The Malaysia Experience)

Closing Remarks
21
E-Commerce – Lessons Learnt
There are many definitions for E-commerce.
Examples:
“The electronic exchange of information goods,
services and payments”
but underneath the surface E-commerce is also:
…the digitization of information
...Internetworking of human ingenuity creating
a new socio-economic transformation
…propelled by BRAINS instead of BRAWN
…driven off by both technology push and
business pull
…the foundation of a new economic order
Nations need to identify clusters for industrial
development and reposition themselves to be at
the centre of the virtual marketspace…
22
E-Commerce Reduces Transaction Costs
“Transaction costs represent more than 50% of the activities within
the US economy. Transaction activities are defined as defining,
protecting, and enforcing property rights to goods (the right to use,
the right to derive income from the use of, the right to exclude, and
the right to exchange.”
- Douglass North, US-economist and Nobel laureate
US$ per transaction
Traditional System
Airline
Tickets
Banking
Bill
Payment
Term Life
Insurance
Software
Distribution
8.0
1.08
2.22 to 3.32
400-700
15.00
0.54
0.54
0.13
0.13
Telephone based
Internet based
E-commerce reduces
transaction costs !
1.0
5.00
200-350
0.20-0.50
Source: OECD
23
The Destruction Of The Vertically Integrated Value Chain
Integrated monolithic
Vertical value chain
Multiple product specialists
collaborating within an e-business
community, creation of alliances
Domain:
Closed
Proprietary
Network
Domain:
The Internet
CHANGE
These Companies can deliver
products and services at a much
lower cost and utilising fewer assets !
24
New Infomediaries – “Hollowing-Out”
Physical Economy
‘Marketplace’
Product
e.g. Malaysian
intermediaries
Digital Economy
‘Marketspace’
Customisation
Multi Products
INFOmediaries:
Portals, Search Engines, Communities
Gateways, Call/Service Centers
Information
e.g. Malaysian
Consumers
Multiple Sources
$$$
Fulfillment
Foreign/Malaysian
Consumers
25
A Service Centric Model
INFOMEDIARY operating under the
VIRTUAL VALUE CHAIN
PHYSICAL INFRASTRUCTURE
(i) Telecommunications
(ii) Integrated Global Logistics
Supplier A
Country 1
Manufacturer B
Country 2
Designer C
Country 3
Utilize :
1.Infrastructure to arbitrage
cost, skills, productivity,
taxes, etc. across multiple
jurisdictions
2. Network and information
3. Channels of distribution
Distributor D
Country 2
Customer E
Country 4
Infomediary leverages information by “BUYING at the point of
LEAST COST and SELLING to the point of HIGHEST PRICE”
26
E-Commerce Implications In Context Of Globalisation
1. First-mover enjoys
entrenched position as ‘lock-in’
increases switching costs
2. There will winners and
losers in Knowledge Age
3. Government
United Kingdom
Canada
Ireland
Germany
United States
of America
interventionist policies
are needed to correct for
market imperfections
Japan
India
Malaysia
Singapore
Australia
4. Capital will gravitate towards a few
‘hubs’ which have developed a critical
mass of users and producers
New Zealand
E-Business may be used to circumvent non-tariff barriers and gain
access to the protected service sectors of emerging economies.
27
Major Concern – Impact of EC on Tax
• Growth of virtual organisations as opposed to
“standing agency”
• Trading conducted electronically without physical
presence of people or agencies
• No clear definition of “transaction” for
determining tax collection
• Loss of revenue due to growth of tax evasion and
black economy
28
Policy and Regulatory Framework
Feedback from EC vendors and users
“We need the government to
raise awareness and promote
Malaysian’s IT capabilities and
competencies in the
international market”
 Standard guidelines for
e-commerce, i.e. regulations
“We need government
endorsement for our services to
better promote our company in
the global marketplace”
 International promotion of
local e-commerce
products/services
“We are looking for financial
incentives from the government
for further development”
“E-commerce in Malaysia is
uncertain, there are no clear
guidelines for implementation”
 Endorsement of credible
merchants
 Consumer protection
 IP Protection and
Enforcement
 Grants and subsidies
 Taxation
29
Consumer Protection
Traditional
transactions
CONSUMER
PROTECTION
ACT
Electronic
Transactions
• Proper legal and regulatory framework vital in ensuring consumer
confidence
• Existing legal framework insufficient:
– new Consumer Protection Act excludes electronic transactions
– No vendor authentication
– Lack of effective statutory remedies available to online consumer
30
POLICY AND REGULATORY FRAMEWORK –
Increasing Consumer Confidence
CHALLENGES
• Expanding existing laws and enacting new Act to apply to
electronic transactions
– Laws should apply equally to online and offline
transactions
• Review role of Existing Regulator:
– New or existing regulator with expanded scope
– Minimal and light handed intervention
– Register of E-Commerce vendors
• Promotion of Self Regulation:
– Accreditation agencies to encourage reputable
vendors
– Consumer Code for vendors
• Consumer Guidelines for consumers
31
Intellectual Property Management & Commercial Code
Intellectual Property Management
– Conflict between trademark rights and registration of domain
names
– Inequality of bargaining power in registration of domain
names
Commercial Code
– Application of general contractual principles to E-Commerce,
particularly cross border transactions
32
Intellectual Property Management & Commercial Code
CHALLENGES
Commercial Code
•
Enacting new laws based on UNCITRAL Model Law to apply
contractual principles to E-Commerce
Intellectual Property Management
•
Accord Domain Name protection and management under the
Communication and Multimedia Commission

Develop an IP management systems for the distribution and
management of the intellectual property especially content
services.

Educate consumer on the importance of the protection as
well as its rules and regulation

Implement cyber laws that have already been implemented as
well as keeping track of new technology to make a more
proactive legislation
33
Dispute Resolution
Existing System
MALAYSIA
LEGAL
SYSTEM
New System
Jurisdiction of dispute
Jurisdiction of dispute
Malaysian Court
Local or foreign court?
Choice of law
Choice of law
Malaysian Law
foreign or local?
Evidence Act
REFJA (Reciprocal
Enforcements of foreign
Judgement Act)
Evidence
electronic document
REFJA is not enforceable
in some major trading
partners
The nature of E-Commerce causes existing laws not able to
cover the resolution process especially in cross border issues
34
Dispute Resolution (Cont’d)
CHALLENGES
•
Amendments to the rule of procedure and evidence
to allow for the evaluation of digital information
•
Establishing independent dispute resolution body
to deal with E-Commerce effectively and
expeditiously
•
Advance the enforcement of awards of such body
transnationally
35
Taxing E-Commerce Transactions
Income Tax
•
•
•
•
Difficulty in applying “source based” concept to E-Commerce. How far would a
Web page/Server constitute a physical existence
Provisions do not capture multi jurisdictional transactions
Difficulties of enforcement, e.g. Encryption technology and Audit trails
International cooperation is needed
Stamp Duty
•
•
Application of stamp duties apply to electronic documents - Stamp Act 1949
based on paper instruments
Difficulty of enforcement and compliance
Sales and Service Tax and Customs and Excise Duties
•
•
•
•
Record keeping requirements still based on paper medium
Enforcement provisions should provide for electronic records
Delivery of intangible goods increases the avoidance of duty
Provisions for compliance insufficient to capture E-Commerce transactions
36
Taxing E-Commerce Transactions
CHALLENGES
•
Deeming provisions – The current Income Tax Act
have to extend the source based tax regime to include
income produced via ISP located in Malaysia
•
Stringent regulations as to identity – The authorities
may want to consider the possibility of drafting
legislation that would impose duty on the service
provider to obtain the information of businesses
registering with them
•
Wider powers of review – Wider audit power by IRB to
investigate private documents that may include
decoding any encrypted data or placing log file with
the ISPs to monitor taxpayers activities on the Internet
37
Taxing E-Commerce Transactions (Cont’d)
•
Re-negotiate Double Tax Agreement (DTA) – The current
DTAs are unclear as of whether websites or host server are
permanent establishment that are subjected to tax
•
Electronic stamping – Extending the existing stamp duty to
electronic documents
•
Monitor the flow of intangible goods – With the influx of
intellectual property into the country, Royal Customs and
Excise Department should monitor the size and growth of
IP to ascertain whether to tax or not to tax
•
Technologically advanced IRB – The taxing authorities
should upgrade their technical capabilities to deal with
encryption technology and the paperless trail to further
enhance their audit and investigative powers.
38
Agenda

Background – Overview of Malaysia’s
Broad Vision and Strategy

E-Commerce – The Scenario

Implications / Challenges of E-Commerce
(The Malaysia Experience)

Closing Remarks
39
In Conclusion
1. Recognise that E-Commerce will transform the
national/global economic landscape and the
emergence of new breed of companies providing
services in the e-space.
2. The borderless nature of E-Commerce will expose
to the impacts of liberalisation and globalisation
and it is imperative for nations to be e-ready.
3. The need to focus and develop skills in knowledge
intensive areas required by global markets e.g. EC
Tax advisors, Lawyers etc.
4. Clear policy framework required to create climate
for growth of ICT sector.
40
Thank-You
41