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Nordin malaysia


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  • 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
  • 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 2020Vision 2020 – a national vision of creating adeveloped 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 MalaysiaThe 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 StrategyGo 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 inthe 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 Economy1996 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. directlyinvolved in E-Commerce 6 20 34 86 138 245*Businesses / No of MSCStatus Companies 94 197 300 429 621 700*Percentage of E-Commerce related 6% 10% 11% 20% 22% 35%*businessesCompanies with owntransaction 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 With33 (15 in Yr 2000) companies directly undertakes Industry Focus Solutions Provider 23E-Commerce / E-Business with transactioncapabilities 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 5105 (71 in Yr 2000) companies develop andimplement e-solutions to enable their Insurance 3customers to undertake E-Commerce Healthcare 3 Others 12 15 Source: MDC
  • 16. 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 - ( 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 - ( 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$9,336.2b 8,000 7,000US$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 0.20-0.50E-commerce reduces Source: OECD 23transaction 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 alliancesDomain: Domain:Closed The InternetProprietaryNetwork 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 LogisticsSupplier A Manufacturer B Designer C Distributor D Customer ECountry 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 Globalisation1. First-mover enjoysentrenched position as „lock-in‟increases switching costs2. There will winners and United Kingdom Canada Irelandlosers in Knowledge Age Germany United States of America Japan3. Government Indiainterventionist policies Malaysiaare needed to correct for Singaporemarket imperfections Australia4. Capital will gravitate towards a few„hubs‟ which have developed a critical New Zealandmass 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 FrameworkFeedback 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 ConfidenceCHALLENGES• 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 lawMALAYSIA 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 TransactionsIncome 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 neededStamp Duty• Application of stamp duties apply to electronic documents - Stamp Act 1949 based on paper instruments• Difficulty of enforcement and complianceSales 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 TransactionsCHALLENGES• 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 Conclusion1. 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