Service Tax Chargeable When Credit Cards and Charge Cards are Issued or Renewed

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The Association of Banks in Malaysia (ABM) has been extended a copy of the guidelines issued by the Ministry of Finance following from the announcement in respect of the imposition of a service tax of RM50 a year on each principal credit card and charge card and a service tax of RM25 a year on each supplementary card effective 1 January 2010 as announced in the 2010 Budget Speech. Having read and discussed the same with its member banks as well as other card issuers quickly, ABM would like to apprise cardholders as follows:-

1. The service tax will be collected by banks and other card issuers from credit and charge cardholders and paid to the Director General of Customs and Excise. In this respect, the amount of service tax payable will be set out in the cardholders’ monthly statement separately.

2. Service tax becomes chargeable at the time when the credit card or charge card is issued, on the anniversary date or upon renewal. The following are examples on when service tax would be chargeable:-

Example 1: Case of a new credit card or charge card issued which is valid for 1 year

Say, a credit card or charge card is issued to a new cardholder on 10 January 2010 with a validity period of 1 year expiring on 9 January 2011. A service tax of RM50 would be chargeable on 10 January 2010, the date of issue of the card.

Example 2: Case of a new credit card or charge card issued which is valid for 5 years

Say, a credit card or charge card is issued to a new cardholder on 8 March 2010 with a validity period of 5 years expiring on 7 March 2015. A service tax of RM50 would be chargeable on 8 March 2010, the date of issue of the card and on every subsequent anniversary date, i.e. 8 March 2011, 8 March 2012, 8 March 2013 and 8 March 2014.

Example 3: Case of existing credit card or charge card which is valid for 5 years

Say, an existing cardholder has a card that was issued to him on 18 May 2008 with a validity period of 5 years expiring on 17 May 2013. No service tax would be chargeable on its anniversary date i.e.18 May 2009 in view of the fact that imposition of service tax will only be effective 1 January 2010. A service tax of RM50 will however be chargeable respectively on 18 May 2010, 18 May 2011 and 18 May 2012.

3. The following cards do not fall under the purview of the imposition of service tax :-

• Debit cards
• Petrol cards (cards issued by petrol companies such as FleetCard and SmartPay)
• Closed community charge cards used at work places, schools and clubs only
• Loyalty cards (such as Bonus Link)
• E-money (such as Touch n’ Go)

4. Service tax will not be charged for replacement cards issued in connection to lost or spoilt cards or fraud.

5. 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), service tax will be charged in respect of the new cards issued unless the anniversary dates of the previous and the new cards are the same.

Banks and other card issuers are allowed to enter into arrangements where cardholders may apply redemption/reward points or rebates they earn 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. For any general enquiries on the service tax on credit or charge cards, please contact the toll-free hotlineABMConnect at 1-300-88-9980 from Monday to Friday or email to [email protected].

List of Banks’ Dedicated Lines for Customer Services