Credit card holders have to pay service tax or use points

PETALING JAYA: Many banks in Malaysia are strategising to help customers pay the government service tax on credit cards effective Jan 1, 2010.

A random survey by StarBiz found that the banks are willing to allow customers to utilise their points collected to help pay the tax charge.

Other banks have also said that consumers could easily offset the tax with the many cash rebates offered with their credit cards.

The Government had announced in Budget 2010 that an annual service tax of RM50 will be imposed for each principal credit card and RM25 for each supplementary card, in an effort to encourage prudent spending.

HSBC Bank Malaysia Bhd general manager for personal financial services Lim Eng Seong said HSBC would be charging the RM50 service tax.

“However, our cardholders have the option to redeem (the service tax) using their points,” he told StarBiz.

“Furthermore, the credit card industry as a whole has come to a consensus that this tax will be borne by the cardholders and not the banks,” he added.

A spokesperson from Standard Chartered Bank Malaysia Bhd also confirmed that its customers could also opt to use their reward points to redeem their service tax.

“Our bank will continue to find ways of rewarding loyal customers through discounts and promotions so that they can see more value in keeping and using Standard Chartered credit cards,” the spokesperson added.

Besides HSBC and Standard Chartered, checks by StarBiz revealed that EON Bank Bhd, CIMB Bank Bhd and Alliance Bank Malaysia Bhd have also provided for its cardholders the option to redeem the tax by using their points.

These banks are offering their principal cardholders the option to offset the RM50 service tax charge using 10,000 bonus points.

As for supplementary cardholders, the banks have offered to offset the RM25 service tax charge using 5,000 bonus points.

Public Bank Bhd and OCBC Bank (M) Bhd have said in the survey by StarBiz that their cardholders could use the many cash rebates and bonuses received to offset the credit card tax.

But a spokesperson with Bank Rakyat Bhd said the bank was still reviewing how it would react to the credit card tax charges.

Early last week, Bank Islam Malaysia Bhd (BIMB) announced that it would not “cover” the proposed service tax on credit cards, saying it already had enough incentives for its credit card customers.

It is the second bank to announce this after Malayan Banking Bhd.

The survey by StarBiz also revealed that RHB Bank Bhd would not “cover” the proposed service tax for its customers.

In a statement yesterday, the Association of Banks in Malaysia (ABM) reiterated that banks and other card issuers were allowed to enter into arrangements where cardholders might apply for redemption, reward points or rebates that they earned through using their cards for the payment of the service tax.

“Member banks and other card issuers will be contacting their cardholders in respect of the imposition of the service tax,” the statement said.

ABM also confirmed that the service tax becomes chargeable at the time when the credit card or charge card is issued, on the anniversary date or upon renewal.

“For example, if a credit card or charge card is issued to a new cardholder on Jan 10, 2010 with a validity period of a year expiring on Jan 9, 2011, a service tax of RM50 would be chargeable on Jan 10, 2010, the date of issue of the card,” the statement said.

If a credit card or charge card is issued to a new cardholder on March 8, 2010 with a validity period of five years expiring on March 7, 2015, a service tax of RM50 would be chargeable on March 8, 2010, the date of issue of the card and on every subsequent anniversary date, that is March 8, 2011; 2012; 2013 and 2014, according to ABM’s statement.

For existing cardholders, for cards issued on May 18, 2008 with a validity period of five years and expiring on May 17, 2013, no service tax would be charged on its anniversary date of May 18, 2009 in view of the fact that imposition of service tax will only be effective Jan 1, 2010.

“A service tax of RM50 will, however, be charged respectively on May 18, 2010; 2011 and 2012,” ABM said.

In the event a credit card or charge card is upgraded (such as in the case of a Classic card to a Gold card) or downgraded (such as in the case of a Gold card to a Classic card) or converted (such as in the case of an Islamic card to a conventional card, or a co-branded card to a generic card, or vice versa) or reinstated (such as in the case of a cancelled card), the service tax will be charged on the new cards issued unless the anniversary dates of the previous and the new cards are the same, according to ABM.

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