Tuesday, December 29, 2009

Banks to start collecting service tax on cards

Banks and other card issuers will collect the service tax on credit and charge cards from January 1 next year.

In a statement yesterday, the Association of Banks in Malaysia (ABM) said that banks and other card issuers would collect the service tax from cardholders and pay the sum to the Director-General of Customs and Excise.

Prime Minister and Finance Minister Datuk Seri Najib Razak had announced that there would be a yearly RM50 service tax on each principal credit or charge card during the tabling of the 2010 Budget. Each supplementary card would be subjected to a yearly service tax of RM25. The tax would take effect next year.

"Having read and discussed the same with member banks as well as other card issuers, ABM would like to apprise cardholders that the service tax payable will be set out in the cardholders' monthly statements separately," it said.

The service tax becomes chargeable on the anniversary date of issue, or upon renewal of the card.

ABM gave three scenarios for the imposition of the service tax:

* Issue of a new credit or charge card that is valid for one year.

If the new card is issued on January 10 next year, expiring on January 9 2011, the service tax will be levied on the date of issue.

* Issue of a new credit or charge card that is valid for five years.

If the card is issued on March 8 next year, expiring on March 7 2015, the service tax would be levied on the date of issue and on every subsequent anniversary date.

* An existing credit or charge card that is valid for five years.

Say, the card was issued on May 18 last year and remains valid till May 17 2013. There would be no service tax on the card's anniversary date this year. However, the tax would be charged on each anniversary date from next year.

The service tax will not be imposed on debit cards; petrol cards issued by petrol companies, such as FleetCard and SmartPay; closed-community charge cards used at workplaces, schools and clubs only; loyalty cards such as Bonus Link; and E-money such as Touch 'n Go.

It will also not be imposed on cards issued to replace lost or spoilt cards or those misused in cases of fraud.

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

Banks and other card issuers are allowed to enter into arrangements under which cardholders may apply for redemption/reward points or rebates towards payment of the service tax.

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