Nordin Malaysia

W T O R E G I O N A L S E M I N A R O N E L E C T R O N I C C O M M E R C E

Geneva, Switzerland 22 April 2002

Revenue Implications Of E-Commerce

Government and Private Sector Experiences

MALAYSIA

Presentation by:

Suhaimi NordinSenior Manager - Borderless Marketing / E-Business

Multimedia Development [email protected]

2

Background – Overview of Malaysia’s Broad Vision and Strategy

E-Commerce – The Scenario

Implications / Challenges of E-Commerce (The Malaysia Experience)

Closing Remarks

Agenda

3

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

4

Vision of Knowledge-Malaysia by year 2020

InformationSociety

KnowledgeSociety

Values-basedKnowledge

Society

2020

Eco

nom

ic

Social

- - P

eople are In

tegral -

-

Inform

ation and C

ommunication

Technology as an Enabler

•Access to information

• ICT as a sector and information as a commodity

•Culture of a life long learning and innovation

•United, moral and ethical society

•Sustainable quality of life

•Value creating knowledge products and services

•Competitive Knowledge Economy

5

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.

6

The MSC Strategy

Create the ideal multimedia environment to attract world-class companies to use MSC as a hub

Catalyze a highly competitive cluster of Malaysian multimedia/IT

companies that become world-class over time

MSC STRATEG

Y

Go Global

Lead Regional

Create value from Information Age

businesses

Enhance domestic

productivity

7

PELABUHANKLANG

KLANG

PETALING JAYA

KLCC

PULAU CAREY

BANTING

TELOKPANGLIMA

GARANG

TELOKDATOK

BANDAR BARUNILAI

KLIA

SEPANG

PORT DICKSON

SEREMBAN

BERANANG

SEMENYIH

COUNTRYHEIGHTS

KAJANG

SHAH ALAM

25 km

BANDAR BARU

BANGI

20 km

SH A H A L AM E XPRE SSWAY

SO UTH

K L A NG VAL LEY EXP R ESSW AY

NO

RT

H- S

OU

TH

EX

P

RE

S SWA Y

ED ER AL HI

K L - K LA N G F G H WAY

NO

RT

H-S O

U

TH

EX

PR E

SSWA

YC EN T

RA

LL

I NK

PULAU INDAH

DE

DICA

TE

D H

IGH

WA

Y

AIRPORT CITY

BANDAR SALAKTINGGI

P U T R AJ AYA L IN K

ER

L

RA

AY

ILW

Y

WE

SC

OT

A

HS

IG

T

H WA

• 15 x 50 km Corridor South of Kuala Lumpur

• Special Cyberlaws, policies and practices tailored to enable smart partners to achieve maximum benefits of multimedia

• World class infra-structure and next generation 2.5 - 10 Gb multimedia network

• MDC - a premier one-stop shop to facilitate and promote the development and investment in the MSC

The MSC – More Than Just a Technology Park

8

Telehealth

Smart Schools Multipurpose Card

R&D Cluster

Electronic Government

Worldwide Manufacturing Web

Borderless Marketing Centre

E-BusinessE-Business

MSC Flagship Applications

OBJECTIVES

To Improve:

• Access - any time, any where, any means

• Convenience – inline to online

• Efficiency

9

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

10

World Class Companies With Regional Initiatives in the MSC

11

Other World Class Companies in the MSC

12

• 1 Corridor

• 50 world-class companies

• Launch 7 flagship applications

• World-leading framework of cyberlaws

• Cyberjaya as world-leading intelligent city

• Web of corridors


• Set global standards in flagship applications

• Harmonized global framework of cyberlaws

• 4-5 intelligent cities linked to other global cybercities

• All of Malaysia


• Global test-bed for new multimedia applications

• International CyberCourt of Justice in MSC

• 12 intelligent cities linked to global information highway

Transform Malaysia into a knowledge society

Phase 3Phase 2

Link the MSC to other cybercities in Malaysia and worldwide

Phase 1

Successfully create the Multimedia Super Corridor

The MSC Vision: From Here To 2020

Leapfrog into

leadership in the

Knowledge Economy

1996 20202003 2010

13




Closing Remarks

Agenda

14

Companies with own transaction capabilities

Developing solutions to enable E-Commerce

E-Business Within MSC Status Companies

1997 1998 1999 2000 2001 2002Forecast*

MSC Status Co. directly involved in E-Commerce Businesses / No of MSC Status Companies

138

621

86

429

Percentage of E-Commerce related businesses

22%20%

30019794 700*

34

11%

20

10% 35%*

245*

33

105

15

71

3

32

50*

195*

Indicator

6

6%

0

6 19

1

15

33 (15 in Yr 2000) companies directly undertakes E-Commerce / E-Business with transaction capabilities

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)

24%24%

76%76%

105 (71 in Yr 2000) companies develop and implement e-solutions to enable their customers to undertake E-Commerce

Source: MDC

• EC Technology Providers and/or System Integrators

• EC Consultancy Services

• Content Development

• EC Training

• E-Business software / applications development

No. of Companies With Industry FocusSolutions Provider 23

Financial 19

Fulfillment 18

Software Apps Dev 16

Portal Dev 12

R&D Apps 10

CRM 6

Travel/Hotels 6

Manufacturing/ERP 5

Web Hosting 5

Insurance 3

Healthcare 3

Others 12

16

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

17

SMEs - (smarttransact.com)

Highlight:

• One Stop powerhouse for E-Commerce 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” – Malaysia Internet Awards 2000

18

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

19

Growth of Internet Subscribers in Malaysia(1995-2005)

Source : MECRA (TMnet, Jaring, MaxisNet, TimeNet), PIKOM, MDC, MECM

25 90 210442

892

1,852

3,111

4,225

4,837

5,525

6,005

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

Year (1995 – 2000)

(‘000 million)Projected growth

An Internet penetration of 20% of population will spur the growth of E-Commerce in Malaysia

20

Total E-Commerce Revenue Growth for Malaysia (1997 – 2005)

Source: IDC Internet Commerce Market Model, IDC 2001

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

US

$mil

lio

n

eCommerce Revenue continue to grow US$384 million in 2000 to US$9.4 billion in 2005

US$383.5m

US$9,336.2b

US$675.6m

21

Agenda




Closing Remarks

22

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…

23

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

Source: OECD

8.0

1.0

AirlineTickets

1.08

0.54

0.13

2.22 to 3.32

0.54

0.13

400-700

200-350

15.00

5.00

0.20-0.50

Banking BillPayment

Term LifeInsurance

SoftwareDistribution

US$ per transaction

E-commerce reduces transaction costs !

Traditional System

Telephone based

Internet based

24

The Destruction Of The Vertically Integrated Value Chain

Integrated monolithicVertical value chain

Multiple product specialists collaborating within an e-business community, creation of alliances

Domain:Closed ProprietaryNetwork

Domain:The Internet

CHANGE

These Companies can deliver products and services at a much lower cost and utilising fewer assets !

25

New Infomediaries – “Hollowing-Out”

Physical Economy‘Marketplace’

Digital Economy‘Marketspace’

ProductProduct

e.g. MalaysianConsumers

$$$

Foreign/MalaysianConsumers

e.g. Malaysianintermediaries

Multi ProductsMulti Products

INFOmediaries:Portals, Search Engines, Communities

Gateways, Call/Service Centers

Information

Customisation

Fulfillment

Multiple Sources

26

A Service Centric Model

Infomediary leverages information by “BUYING at the point of LEAST COST and SELLING to the point of HIGHEST PRICE”

INFOMEDIARY operating under theVIRTUAL VALUE CHAIN

PHYSICAL INFRASTRUCTURE(i) Telecommunications

(ii) Integrated Global Logistics

Supplier ACountry 1

Manufacturer BCountry 2

Designer CCountry 3

Distributor DCountry 2

Customer ECountry 4

Utilize :1.Infrastructure to arbitrage cost, skills, productivity, taxes, etc. across multiple jurisdictions2. Network and information3. Channels of distribution

Utilize :1.Infrastructure to arbitrage cost, skills, productivity, taxes, etc. across multiple jurisdictions2. Network and information3. Channels of distribution

27

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 interventionist policies are needed to correct for market imperfections

4. Capital will gravitate towards a few ‘hubs’ which have developed a critical mass of users and producers

United Statesof America

United Statesof America

CanadaCanada

AustraliaAustralia

New ZealandNew Zealand

JapanJapan

United KingdomUnited Kingdom

GermanyGermany

SingaporeSingapore

IrelandIreland

IndiaIndiaMalaysiaMalaysia

E-Business may be used to circumvent non-tariff barriers and gain access to the protected service sectors of emerging economies.

28

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

29

“We need the government to raise awareness and promote Malaysian’s IT capabilities and

competencies in the international market”

“We need government endorsement for our services to

better promote our company in the global marketplace”

“E-commerce in Malaysia is uncertain, there are no clear

guidelines for implementation”

“We are looking for financial incentives from the government

for further development”

Feedback from EC vendors and users

Standard guidelines for e-commerce, i.e. regulations

Endorsement of credible merchants

International promotion of local e-commerce products/services

Consumer protection

IP Protection and Enforcement

Grants and subsidies

Taxation

Policy and Regulatory Framework

30

• 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

• 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

CONSUMER PROTECTION

ACTTraditional

transactionsElectronic

Transactions

Consumer Protection

31

POLICY AND REGULATORY FRAMEWORK –Increasing Consumer Confidence

• 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

CHALLENGES

32

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

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

33

Intellectual Property Management & Commercial Code

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

CHALLENGES

34

Dispute Resolution

MALAYSIALEGAL SYSTEM

New System

Jurisdiction of dispute Malaysian Court

Choice of law Malaysian Law

Evidence Act

REFJA (Reciprocal Enforcements of foreign

Judgement Act)

REFJA is not enforceable in some major trading

partners

Evidence electronic document

Choice of law foreign or local?

Jurisdiction of disputeLocal or foreign court?

Existing System

The nature of E-Commerce causes existing laws not able to cover the resolution process especially in cross border issues

35

• 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

Dispute Resolution (Cont’d)

CHALLENGES

36

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

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

37

Taxing E-Commerce Transactions

• 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

CHALLENGES

38

• 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.

Taxing E-Commerce Transactions (Cont’d)

39




Closing Remarks

Agenda

40

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.

In Conclusion

41

Thank-You

Education

Nordin Malaysia