Malaysia is not ready for an Artificial Intelligence (AI) tax as the integration of AI into Malaysian industries is still in its early stages, a tech veteran said last Friday.
Malaysia-based digital agency Sociolytics Sdn Bhd chief operating officer and digital strategist, Skill Wave Academy chief technology officer Shashi Muniandy said in a statement that introducing an AI tax at this point could place additional financial burdens on companies, particularly smaller firms and startups that are still in the process of exploring AI’s potential.
“The increased costs associated with such a tax might deter businesses from adopting AI technologies, potentially stalling the digital economy’s growth trajectory,” he added.
According to him, small and medium-sized enterprises (SMEs), a vital component of Malaysia’s economy, often face resource constraints that limit their ability to quickly adopt advanced technologies like AI.
He opined that an AI tax could exacerbate these financial pressures, restricting SMEs’ capacity to innovate, compete, and grow.
“Given the government’s goal of democratizing AI use and empowering more SMEs to drive economic development, imposing a tax at this stage could hinder progress and widen the technology adoption gap between large corporations and smaller enterprises,” he said.
Moreover, he noted Malaysia lacks a comprehensive regulatory framework specifically addressing AI’s ethical, data privacy, and security concerns, despite existing legislation such as the Personal Data Protection Act (PDPA) covering certain aspects of AI usage.
Without clear guidelines, he said an AI tax could create compliance challenges and legal uncertainties for businesses.
He also highlighted the introduction of a tax should be preceded by the development of a dedicated regulatory framework that addresses these complexities to avoid confusion and compliance difficulties.
According to him, the government’s ongoing efforts to bridge the digital divide by promoting digital skills and AI literacy should take precedence over taxation.
While AI tax revenues could potentially support such initiatives, he said the imposition of a tax could prematurely impede AI adoption, especially among sectors that are less digitally advanced.
“Prioritizing workforce development and educational initiatives to prepare for AI-driven changes is more critical at this juncture than generating tax revenue,” he emphasized.
He also noted Malaysia’s aspiration to become a regional leader in the digital economy could also be jeopardized by an AI tax.
He opined that the introduction of such a levy might make the country less attractive to foreign investors, especially when neighboring nations could offer lower AI-related costs.
“This situation could lead to the diversion of international tech investments away from Malaysia, thus hampering the nation’s ambition to attract global talent, capital, and technological innovation in the AI sector，” he added.
In the global race for AI supremacy, he said nations that impose taxes on AI prematurely may find themselves at a disadvantage.
According to him, countries with fewer regulatory and financial barriers can attract more investment, talent, and technology.
“By delaying the implementation of an AI tax, Malaysia could maintain its competitive edge, ensuring that it does not unintentionally drive businesses to relocate to more tax-friendly environments,” he said.
He also highlighted the government should consider postponing the introduction of an AI tax, should such plans be under consideration for the coming year.
“It is crucial to allow Malaysia’s AI industry to grow and stabilize, thereby laying the groundwork for the country to become the AI hub of Southeast Asia,” he said.
As a strategically located nation, he noted Malaysia can leverage its geographical position to bolster AI infrastructure and support neighboring economies.
“The focus should be on empowering the local AI ecosystem to thrive and establishing Malaysia as a significant player in the global AI arena, rather than imposing early-stage financial constraints that could stifle progress,” he said.
It is noted that the National Artificial Intelligence Roadmap (AI Roadmap) aims to establish Malaysia as a global leader in AI technology, with the government and industry players confident that the roadmap provides a robust framework for leveraging AI to stimulate economic growth.
Efforts to accelerate AI adoption are being driven by initiatives such as the Malaysia Artificial Intelligence Roadmap 2021-2025 and the National Industrial Master Plan 2030, which focus on digital transformation and automation.
Gobind Singh Deo, the Minister of Digital Communications, has highlighted that AI is poised to be a transformative force for Malaysia’s industries, public services, and economy.
However, discussions with industry stakeholders and Ministry of Finance (MOF) officials reveal that the Malaysian government may be contemplating the introduction
of an AI tax.
An AI tax is a levy imposed on companies that utilize or develop AI technologies.
“In my view, Malaysia is not yet in a position to implement such a tax, and doing so could be premature…Now is the time for Malaysia to act as an enabler in the AI landscape, fostering growth and innovation while preparing the regulatory and economic environment to support future advancements,
“Let us allow the AI sector to flourish, setting a strong foundation before considering the introduction of an AI tax,” Muniandy concluded.