Written by Yong Min Wei 
Monday, 07 December 2009 11:27
Bookmark and Share

KUALA LUMPUR: The government may scrap the annual RM25 service tax on supplementary credit cards proposed under Budget 2010 following feedback from stakeholders and the public, a government source said.

The source said finance ministry officials understood that most supplementary credit cards were issued to principal card holders’ next-of-kin or immediate family members for ease of payments, adding that in general, principal card holders would end up bearing the service tax imposed on supplementary cards.

“We are aware of the predicament a principal card holder would face if he sublets several cards to his children or siblings. As such, imposing service tax on supplementary card holders may not necessarily promote prudent spending,” he told The Edge Financial Daily.

However, the source said the RM50 service tax for the principal card was expected to remain but the government was looking into some leeway which include the possibility of a principal holder being exempted from service tax on at least one card from each financial institution.

“It is common in consumer banking marketing that the same issuing bank offers both Visa and MasterCard to the principal card holder. In theory, they should only be taxed on just one card instead of two since there is usually joint credit limit,” he noted.

The source pointed out that there would be a level playing field if a principal card holder obtained exemption for one card per bank, stressing that such move would not burden banks in absorbing the service tax and at the same create healthy competition.

“The concern lately is that not all banks are willing to absorb service taxes although they may issue credit cards free of charge,” the source said, stressing that banks might only be willing to absorb the tax for high spenders and prompt payers.

The government had proposed under Budget 2010 to impose an annual service tax of RM50 for each  principal credit card and RM25 for each supplementary card effective Jan 1, 2010 even if the cards were issued free.

However, the government has said banks are given the greenlight to absorb the taxes if they wished to do so.

Deputy Finance Minister Datuk Chor Chee Heung told parliament last month that there were some 11 million credit cards in the country and the government stood to collect about RM450 million from the service tax. Service tax on credit cards were first imposed in 1997 but was abolished in April 2001.

On whether there would be many cancelling their cards come year end, the source said the government expected cancellation of cards to be minimal as principal card holders might only cancel unused credit cards to avoid the tax.

“Card holders also enjoy benefits from co-branding between the banks and retailers and hypermarkets as well as points reward. They are not going to lose out just because of RM50 per year,” he added.

According to him, there were also corporate members that have credit cards for their senior executives and they are unlikely to cancel such cards simply because of the tax.

The source added the government together with financial institutions would come up with programmes to promote prudent spending among card holders and might and may also tighten the rules for card applicants in an effort to instill better cash flow management among the people.
This article appeared in The Edge Financial Daily, December 7, 2009.