Credit Card Service Tax in 2010

Of all the announcements in the 2010 budget, the ruling of the service tax to be imposed on credit cards and charge cards effective from 2010 have attracted much public complaints, especially for those with a string of cards in their wallet.

Based on the ruling, the RM50 service tax will be imposed on the principle credit card and charge card and RM25 will be levied on the supplementary card with effective from 2010. The official reason quoted is is to encourage prudent spending among consumers. However, it can not be denied that the actual reason is to collect the additional revenue for the goverment. Based on the circulatation (as at Oct 09) of more than 11 millions of cards in the market (9.9 mil of principle cards and 1.3 mil of supplementary cards), the goverment is expected to collect the additional revenue of RM527 mil from the service tax.

Despite much complaints, the goverment officer has reiterated that the credit card service tax is here to stay. As 2010 is just around the corner, a lot of consumers have started calling up their credit card issing banks to cancel the additional credit cards or request for the bank to absorb this service tax. Based on the latest announcement, the service tax will be charged upfront for the new credit & charge cards issued. The existing cardholders will only be charged the ser­vice tax through their issuing banks upon the aniversary date of the card.

The call centre agent of one the of foreign bank informed me that they would waive my annual membership fees for my principle cards (wow!, I did not ask for it). This measure is introduced due to the increasing cancellation requests of credit cards due to the new service tax. When asked on whether the bank would absorb the service tax for their customers, the answer given is the customers could utilize 11,000 points collected to redeem for the RM50 waiver. I am sure many commercial banks will be coming out various innovative measures to minimize the card cancellations and protect their market position.

Rather than cancelling the cards, I would take up the bank's offer to keep both of my Visa and Master credit cards by utilizing the points earned for the redeemption of the service tax incurred.