November 2, 2009
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News: Malaysians Upset Over RM50
Residents of Kauala Lumpur, Malaysia are unhappy over the government's recent reinstatement of the RM50 service tax which will be assessed on the principal of all credit card balances. Residents, known as KLites, want to know who will pay this tax. Will it be the banks or the credit card account holder? Last week, the Government announced the implementation of the tax in the budget; however, the banks do not yet have the answer because they are still awaiting release of the guidelines from Bank Negara Malaysia. The RM50 service tax on credit card balances was originally imposed in 1997 and stamped out four years later in 2001.
The RM50 tax will be accessed on the principal balance of all charge and credit cards while the RM25 regulates an assessed tax on all supplementary cards. Both the RM50 and the RM25 have been developed to promote wise spending and management of credit card debt. KLites are outraged and concerned about how the new law will affect them. Those of particular concern are individuals carrying more than one card. If KLites are forced to pay the tax, some individuals carrying as many as six or more co-branded retailers and airline cards will most likely need to rethink the cards' value. Retailers and airlines might witness a sharp decline in market share resulting from account closures by customers who do not want to pay the RM50 tax.
Some officials believe the tax will force customers to utilize the cards they are currently carrying rather than open up new accounts. Some individuals will open up new accounts just to take advantage of marketing rewards and gifts and then the accounts typically remain unused. Lawmakers also hope that the new RM50 tax will discourage many individuals from using credit cards as a source of easy money. By doing so, consumers will be better able to reduce debt and avoid credit problems. According to the Bank Negara, there are currently 9.8 million principal cards and 1.3 million supplementary cards in circulation. The Government looks to acquire a great deal of money from the more than 10 cards. If history repeats itself, it looks like the KLites will be the ones to feel the brunt of it.