RM50 credit card service tax should not be a ‘plastic hungry’ move

THE debate over the RM50 credit card service tax rages on even as the banking sector is urging the Government to reconsider the industry’s proposal to exclude corporate cards and impose the tax on per customer instead of per card basis.

Corporate cards are used for ease of transactions and cashflow management; executives have less forms to fill and in this context, it is a step towards improving productivity.

“If the objective of imposing the service tax is to prevent individuals from misusing credit, why are cards used by corporates also taxed? That will not only increase the cost of doing business but also send a potentially wrong message that companies can get penalised for being efficient,’’ Citibank Malaysia CEO Sanjeev Nanavati said in response to queries from StarBiz.

“This is not a small, localised issue,’’ he added. “People are going to view this as one of the implications of doing business in Malaysia.’’

Imposing service tax on per card basis is also a wrong move as spending power should not be gauged by the number of plastics held but on the total amount of credit available.

“A lot of people spend prudently and have multiple cards for the value they see in them,’’ said Sanjeev. “Taxing them on each card they hold has the effect of taking away some of the value they are receiving from these cards. Furthermore, banks impose a credit limit across multiple cards. So having more cards with the same bank does not mean you can spend more.’’

There is no serious personal debt problem in Malaysia and hence, no urgent need to clamp down on the usage of the cards. In a truly cashless society, people use cards as a matter of convenience and that could be for small amounts.

Those who had spent many hours devising ways to encourage cashless transactions must be scratching their heads at this “brilliant’’ move to tap into their success in generating the volume and usage of cards.

In the name of consolidation, the Government’s move to slap a RM50 service tax is viewed as a step backwards and too high an amount despite top officials’ assertion that it is “no big deal.’’

A RM10 or RM20 tax would be more palatable while passing on the message of prudence.

Even though the budget announcement says the tax is effective from Jan 1 next year, it may not necessarily mean that it is collected all at once.

A better time would be when the card comes up for annual review, which may be a few years from the expiry. Banks do their internal reviews annually when they decide on the card fees to be charged or waived for the following year of usage.

By stretching that period till December next year, banks may get to retain their card users a bit longer although a 20%-30% cancellation rate is expected.

With just a month towards Jan 1, there is not much time for card users to arrange for cancellations especially when they have to wait for their latest statements to make the last payments.

A decision must be announced soon on what is really going to happen.

l Senior business editor Yap Leng Kuen hears rumblings even among foreigners on the card service tax and how it appears contrary to the Government’s aim to increase private consumption. As a rule of thumb, industry consultation is always advisable for smooth and targeted implementation of any measures.