KUALA LUMPUR: Any plan to impose a levy on cloud service providers (CSPs) will be counterproductive, says a top industry executive.
Small and Medium Enterprises Association (Samenta) national president Datuk William Ng said SMEs face the brunt of increased costs that slow their cloud adoption, while providers may curb investment – a dynamic that threatens Malaysia’s ambition to be a digital investment hub.
In most other markets, NG said, universal service levies remain focused on telecom operators rather than application-layer services, as expanding them into cloud services will likely have adverse impact on growth, competition and gross domestic product.
“We’re already seeing escalating costs from cloud service providers. Some global providers have increased their fees by 15 per cent to as much as 250 per cent over the past three years.
“Since migration between platforms is rarely straightforward, SMEs affected by these price hikes often have little choice but to absorb the extra cost,” he told Business Times today.
Ng was commenting on Khairy Jamaluddin and Shahril Hamdan’s statements suggesting that a six per cent levy on CSPs under the universal service provision (USP) fund is in the offing.
In the latest episode of the Keluar Sekejap podcast, Khairy and Shahril said the prospect may increase operational costs for SMEs and weaken Malaysia’s attractiveness as a key destination for digital investment.
Ng said a more balanced approach would be to register and regulate the CSPs and to apply the same anti-profiteering rules that our SMEs are already subject to.
“However, that would require a fundamental rethink of the USP framework itself. Penalising providers while also taxing their growth is unrealistic,” he added.
Meanwhile, Khairy and Shahril raised concerns that the levy, if implemented, would have knock-on effects across the digital economy ecosystem.
Khairy warned that the levy could drive up costs for consumers and businesses, potentially hindering digital adoption.
“Six per cent of the revenue is not small. It’s a substantial amount. So naturally, CSPs will pass on that cost to their customers.
“Among them are e-commerce platforms serving SMEs and businesses that rely on the cloud to boost productivity. Those custimers will, in turn, pass the cost down to consumers,” he said.
Shahril pointed out that over 90 per cent of businesses in Malaysia are SMEs, many of which are still struggling to embrace digital technologies.
The additional cost, he added, would further hinder cloud adoption which is a key component in SME digitalisation.
“One of the key challenges for SMEs is achieving digitalisation, given the barriers they already face.
“Adding further costs due to the USP, which are likely to be passed on, will only deepen resistance to adopting cloud solutions, a critical component of their digital transformation journey.
“So this really raises concerns about how such a move negatively impacts one of the very economic development models that have been actively promoting,” he added.
Khairy noted that no other Southeast Asian country imposes such a levy on CSPs.
He warned that global tech giants such as Amazon Web Services (AWS), Microsoft and Google may view Malaysia as less competitive compared to Singapore, which does not impose any CSP-specific taxation.
“I’m sure these companies have already raised the matter with US trade representatives,” said Khairy, proposing that the government delay the implementation of the levy by a year to allow time for further discussions with foreign investors.
Khairy said the USP fund was originally imposed on telecommunications companies (telcos) like Maxis Bhd and Telekom Malaysia Bhd to fund basic infrastructure development, such as communication towers in rural areas.
However, he argued that the same logic does not apply to CSPs which operate under a different business model.
“I’m just trying to understand this. Telcos are required to provide widespread services to everyone because we aim for universal coverage. But not everyone needs a cloud service provider. So it doesn’t quite make sense to equate CSPs with the USP obligation,” he said.
Khairy expressed concern that the levy may be based on the assumption that CSPs must “give back” due to their high consumption of electricity and water – even if those resources come from renewable sources.
But if that’s the case, he argued, the mechanism should be a separate environmental or resource levy instead of the USP fund.
Khairy and Shahril said the government must clarify the true rationale behind the levy.
They suggested postponing its implementation to allow stakeholder engagement and dialogue with industry players and foreign investors.
“We’re not rejecting it outright. But there should be clear justification, and no rush.
“If handled well, this could even be used as a bargaining chip in trade or investment negotiations,” Khairy said, alluding to potential strategic benefits in US-Malaysia economic ties.
© New Straits Times Press (M) Bhd
