RM50 Credit Card Tax

KUALA LUMPUR: Applicants issued with new credit and charge cards next year will have to pay the RM50 ($20.40) service tax upfront.

For existing card holders, the charge will be imposed on the anniversary date of cards.

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah, who confirmed this with The Star yesterday, said the Government would impose the service tax for credit and charge cards from next year.

'Existing cardholders will only be charged the ser'vice tax through their issuing banks upon the anniversary date of the card.

'For example, if the card's anniversary date is in January, then you pay the tax in January. But if the date is in April, then you only pay the tax in April,' he added.

The minister's clarification puts to rest nagging doubts among the millions of credit card holders in the country who have been raising queries since Prime Minister Datuk Seri Najib Tun Razak announced the new tax when he unveiled Budget 2010 in October.

Najib, who is also the Finance Minister, had said that a RM50 service tax for principal credit and charge cards and a RM25 for supplementary cards would be imposed from January.

This has led to card holders asking if the charges will be imposed from Jan 1 or on the anniversary dates of the cards, which are usually issued for a three-year period.

Those holding a string of cards were most eager to know before deciding to cancel some of their accounts.

A check with the customer service departments of several commercial banks showed that they had yet to receive any definite confirmation.

Some banks said they were still awaiting for a directive from Bank Negara, while others think the tax would be imposed on the anniversary dates.

A third group of banks has also offered to absorb the tax for the cardholders, on condition a certain amount of money was spent within a certain timeframe.

Cardholder Y.L. Sim, who called up the bank to cancel his credit card, said the bank advised him 'not to be hasty.'

'The officer said that they had yet to receive a formal directive from Bank Negara (on when to impose the tax). But I was worried as the New Year was nearing,' he said.

Deputy Finance Minister Datuk Chor Chee Heung, when contacted, advised cardholders to plan accordingly, saying holding two credit cards was enough.

'Even I intend to hold only two credit cards,' he added.

He urged those who had large outstanding credit card debts to stop using the cards and meet the issuing banks to work out a repayment mechanism.

There are some 11 million credit cards circulating in the country.

By Eva Norlyk Smith, Ph.D.

As an increasing number of consumers struggle with credit card debt, many are choosing to walk away from their debt altogether. According to the latest report from Moody’s Investors Service, credit card defaults continued their upward climb in August of 2009 after leveling off slightly in July.

Moody’s August report showed a sharp increase in defaults, or charge-offs, i.e. credit card debt that is more than 60 days old and which card issuers has written off as uncollectable. The default rate climbed to 11.49 percent, almost a full one percent higher than the 10.52 percent reported for July. Compared to 12 months ago, the default rate is up almost 70 percent, from 6.8 percent in August of 2008.

For card issuers this is bad news. Default rates at 11.49 percent means that they are losing 11.49 cents for every dollar of credit card debt on the books. And more defaults are in the pipeline. Early-stage delinquencies, i.e. accounts with payments late by 30 to 60 days, increased to almost 5.8 percent, compared to 4.6 percent a year earlier.

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