1. 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

2. 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

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
3

4. Vision of Knowledge-Malaysia by year 2020
• Competitive Values-based 2020
Knowledge Knowledge
Economic
Economy Society
• Value creating Knowledge
knowledge Society
products and
services
Information
Society
• ICT as a sector
and information
as a commodity
Social
• Access to • Culture of a life • United, moral and
information long learning and ethical society
innovation
• Sustainable
quality of life 4

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.
5

6. The MSC Strategy
Go Global Create the ideal multimedia
environment to attract world-class
companies to use MSC as a hub
Enhance
domestic MSC
productivity STRATEGY Create value from
Information Age
businesses
Catalyze a highly competitive
cluster of Malaysian multimedia/IT
companies that become world- Lead
class over time Regional
6

7. The MSC – More Than Just a Technology Park
KLCC
PETALING JAYA
• 15 x 50 km Corridor SHAH ALAM
South of Kuala Lumpur
KLANG
• Special Cyberlaws, ED ER AL HI
PELABUHAN
policies KLANG practices
and
COUNTRY
tailored to enable HEIGHTS
L
KAJANG
smart partners to
achieve maximum TELOK
SEMENYIH
benefits of multimedia PANGLIMA
GARANG
BANDAR BARU
BANGI
• World class infra-
BERANANG
PULAU INDAH AIRPORT CITY
A
structure and next
AY
generation 2.5 - 10 Gb PULAU CAREY
BANTING TELOK
BANDAR SALAK
TINGGI BANDAR BARU
NILAI
DATOK
multimedia network
KLIA
• MDC - a premier one-
stop shop to facilitate SEPANG
SEREMBAN
and promote the
development and
investment in the MSC PORT DICKSON
7

8. MSC Flagship Applications
Smart Schools Multipurpose Card Electronic Government
OBJECTIVES
To Improve:
• Access - any time, any
where, any means
Telehealth
• Convenience – inline R&D Cluster
to online
• Efficiency
Borderless E-Business Worldwide
Marketing Centre Manufacturing Web
8

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 9

10. World Class Companies With Regional Initiatives in
the MSC
10

11. Other World Class Companies in the MSC
11

12. The MSC Vision: From Here To 2020
Phase 3
Phase 1 Phase 2
Link the MSC Leapfrog
Successfully create Transform
to other into
the Multimedia Super Malaysia into
cybercities in
Corridor a knowledge leadership
Malaysia and
society in the
worldwide
Knowledge
Economy
1996 2003 2010 2020
• 1 Corridor • Web of corridors • All of Malaysia
• 50 world-class • 250 world-class • 500 world-class
companies companies companies
• Launch 7 flagship • Set global standards • Global test-bed for new
applications in flagship multimedia applications
applications
• World-leading • International
framework of • Harmonized global CyberCourt of Justice
cyberlaws framework of in MSC
cyberlaws
• Cyberjaya as world- • 12 intelligent cities
leading intelligent • 4-5 intelligent cities linked to global
city linked to other global information highway 12
cybercities

13. 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

14. E-Business Within MSC Status Companies
1997 1998 1999 2000 2001 2002
Indicator Forecast*
MSC Status Co. directly
involved in E-Commerce 6 20 34 86 138 245*
Businesses / No of MSC
Status Companies 94 197 300 429 621 700*
Percentage of E-
Commerce related 6% 10% 11% 20% 22% 35%*
businesses
Companies with own
transaction capabilities 0 1 3 15 33 50*
Developing solutions to 6 19 32 71 105 195*
enable E-Commerce
14

15. 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)
No. of Companies With
33 (15 in Yr 2000) companies directly undertakes Industry Focus
Solutions Provider 23
E-Commerce / E-Business with transaction
capabilities Financial 19
• E-Business software / Fulfillment 18
24% applications development
Software Apps Dev 16
• Content Development Portal Dev 12
• EC Technology Providers R&D Apps 10
76% and/or System Integrators
CRM 6
• EC Consultancy Services Travel/Hotels 6
• EC Training
Manufacturing/ERP 5
Web Hosting 5
105 (71 in Yr 2000) companies develop and
implement e-solutions to enable their Insurance 3
customers to undertake E-Commerce Healthcare 3
Others 12 15
Source: MDC

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 16

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
17
• “Internet Company of the Year” –

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
18

19. Growth of Internet Subscribers in Malaysia
(1995-2005)
(„000 million) Projected growth
7,000
An Internet penetration of 20% of 6,005
6,000 population will spur the growth of 5,525
E-Commerce in Malaysia 4,837
5,000
4,225
4,000
3,111
3,000
1,852
2,000
892
1,000 442
90 210
25
0
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Year (1995 – 2000)
19
Source : MECRA (TMnet, Jaring, MaxisNet, TimeNet), PIKOM, MDC, MECM

20. 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
9,000
US$9,336.2b
8,000
7,000
US$million
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 2003 2004 2005
20
Source: IDC Internet Commerce Market Model, IDC 2001

21. 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

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… 22

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
US$ per transaction
Airline Banking Bill Term Life Software
Tickets Payment Insurance Distribution
Traditional System 8.0 1.08 2.22 to 3.32 400-700 15.00
Telephone based 0.54 0.54 5.00
Internet based 1.0 0.13 0.13 200-350 0.20-0.50
E-commerce reduces Source: OECD
23
transaction costs !

24. The Destruction Of The Vertically Integrated Value Chain
Integrated monolithic Multiple product specialists
Vertical value chain collaborating within an e-business
community, creation of alliances
Domain: Domain:
Closed The Internet
Proprietary
Network
CHANGE
These Companies can deliver
products and services at a much
lower cost and utilising fewer assets !
24

25. New Infomediaries – “Hollowing-Out”
Physical Economy Digital Economy Multiple Sources
„Marketplace‟ „Marketspace‟
Product Multi Products
Customisation
INFOmediaries:
e.g. Malaysian Portals, Search Engines, Communities
intermediaries Gateways, Call/Service Centers
$$$
Information Fulfillment
e.g. Malaysian Foreign/Malaysian
Consumers Consumers
25

26. A Service Centric Model
INFOMEDIARY operating under the
Utilize :
VIRTUAL VALUE CHAIN
1.Infrastructure to arbitrage
cost, skills, productivity,
taxes, etc. across multiple
jurisdictions
PHYSICAL INFRASTRUCTURE 2. Network and information
(i) Telecommunications 3. Channels of distribution
(ii) Integrated Global Logistics
Supplier A Manufacturer B Designer C Distributor D Customer E
Country 1 Country 2 Country 3 Country 2 Country 4
Infomediary leverages information by “BUYING at the point of
LEAST COST and SELLING to the point of HIGHEST PRICE”
26

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 United Kingdom
Canada Ireland
losers in Knowledge Age Germany
United States
of America Japan
3. Government India
interventionist policies Malaysia
are needed to correct for Singapore
market imperfections
Australia
4. Capital will gravitate towards a few
„hubs‟ which have developed a critical New Zealand
mass of users and producers
E-Business may be used to circumvent non-tariff barriers and gain
access to the protected service sectors of emerging economies. 27

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
28

29. Policy and Regulatory Framework
Feedback from EC vendors and users
“We need the government to  Standard guidelines for
raise awareness and promote e-commerce, i.e. regulations
Malaysian’s IT capabilities and
competencies in the  Endorsement of credible
international market” merchants
“We need government  International promotion of
endorsement for our services to local e-commerce
better promote our company in products/services
the global marketplace”  Consumer protection
“We are looking for financial  IP Protection and
incentives from the government Enforcement
for further development”
 Grants and subsidies
“E-commerce in Malaysia is
uncertain, there are no clear
 Taxation
guidelines for implementation”
29

30. Consumer Protection
CONSUMER
Traditional Electronic
PROTECTION
transactions Transactions
ACT
• 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

31. 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

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
32

33. 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

34. Dispute Resolution
Existing System New System
Jurisdiction of dispute Jurisdiction of dispute
Malaysian Court Local or foreign court?
Choice of law Choice of law
MALAYSIA Malaysian Law foreign or local?
LEGAL
SYSTEM Evidence Act
Evidence
electronic document
REFJA (Reciprocal REFJA is not enforceable
Enforcements of foreign in some major trading
Judgement Act) partners
The nature of E-Commerce causes existing laws not able to
cover the resolution process especially in cross border issues
34

35. 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

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
36

37. 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

38. 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

39. 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

40. 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

41. Thank-You
41