On 23 May 2016, Inland Revenue Board of Malaysia(LHDN) issued an immediate release. It is an explanation about income tax declaration for online business owner. This immediate release has created a chaotic among Malaysian bloggers. Why? If you read the LHDNM/R17/16 brochure clearly, blog is categorised as an e-commerce’s medium. Does it mean that blogger need to pay tax? Isn’t blogging considered as hobby? No answer. There is no further explanation from LHDN.
On 1 July 2016, Google Business Group Johor Bahru founder, Mr. Johnson Lai and Financio posted an old newspaper article to refresh their clients’ memory. Online entrepreneurs need to register with the Companies Commission of Malaysia (SSM) to conduct their online selling. Online business transactions without registration are considered against the law.
SSM chairman Datuk Seri Alias Ahmad further explained that “Any sort of business that generates income must be registered. There is no exception.”
After reading the above articles, I have a clearer picture on the situation. However, since June 2016, Malaysians need to use IC number or SSM certificate to buy domain name from Malaysia-based web hosting company. Does it mean that LHDN or SSM or Ministry of Communications and Multimedia(KKMM) are tracking each domain name activities? Is it for future tax tracking purpose? I have no idea as there no information was published officially.
What is Blog?
Blog is a Web site that contains online personal reflections, comments and often hyperlinks provided by the writer. ~ Merriam-Webster Dictionary
This is the technical definition for blog. I asked a few blogger, accountants, business owners and technopreneurs regarding this question. They are pending for an answer too. There are no definite answer or definition from the relevant government department. Currently, LHDN is under the Ministry of Finance (MOF)’s instruction to conduct a research regarding this question.
What is Online Business / e-Business / e-Commerce?
Business is the activity of making, buying or selling goods or providing services in exchange for money. ~ Merriam-Webster Dictionary.
I further research this questions in Inland Revenue Authority of Singapore Website. Singapore has a similar (but not exactly same) taxation system with Malaysia. Just to refresh your mind, Malaysia and Singapore are once colonised by Britain. Thus, commonwealth countries have similar taxation system.
All payments and benefits derived from the carrying on of blogging, advertising and any other activity performed on social media platforms as trade or business constitute gains or profits from a trade or business under section 10(1)(a) of the Income Tax Act (ITA). ~ Inland Revenue Authority of Singapore
Ministry of Finance Malaysia is planning to collect tax from online business. Image Credit: LHDN Facebook page
Quick checklist on Hobby or Online Business
I adopted and adapted the quick list from Australian Taxation Office. I restructure the questions for better understanding.
1) Did you set up your online sales with the intention of being a business? / Do you want to be a boss? / Is blogging is a part of your career goal? / Do you want to be Malaysian Top bloggers? For example: Bangsar Babe/ HongKiat / Siakap Keli / Cheesie / Tony Johor Kaki? 2) Do you pay for your online-selling presence? Do you pay for Facebook ad? Bing Ad? Google advertisement? Or any other social media platforms? For example: WGOIJB 3) Is your main intention to make a profit? Is blogging your second income? Extra income? To gain for sponsored products/ services? 4) do you make repeated or regular sales? / Do PR company or clients look for you to write blog or post photos? 1 week once? 5) Do you sell your online items for more than cost price? Do you sell your services more than the market rate? For example: your Facebook page has 100k followers. You charge around RMxxx for a post. RMxxx –operating cost = profit 6) Do you manage your online selling as if it were a business? Do you constantly do blogging if there are many clients requesting for it? 7) Is what you are selling online similar or the same as what might be sold in a 'bricks and mortar' business? For example: mamak shop/ TESCO / GIANT. Are you selling your content writing services ?
If you agree to more of the questions (at least or more than 4 agrees), you may fall under online business category. You may need to register as a company.
So, Hobby or Business?
Don’t let the big hairy monetization question keep you from diving into a topic that you really enjoy. The money will come. For now, you just follow your passion. Seriously. ~ Neil Patel
Stay focus on what you like. If you like to blog about food, continue to do it. It doesn’t matter whether you get sponsored meal or paid review. You just enjoy your passion and write about it. Should you have a bookkeeping or log record for your hobby? In my opinion, it depends on individual. However a good bookkeeping will improve your financial literacy. In the end, you may become an entrepreneur or blogging become a second income.
I will discuss bookkeeping or log record related to blogging in the following post. Stay tune for more articles. Please feel free to discuss the issue with me.
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