PETALING JAYA: The RM25 service tax on credit cards and charge cards is expected to add around RM255mil annually to government coffers.

The assumption is based on the number of credit cards and charge cards in circulation at the moment – 10.2 million.

Of the number, nine million are principal credit cards, 1.1 million supplementary cards and around 129,000 charge cards, according to Bank Negara figures.

Based on historical data, there has always been a drop in the number of credit cards in circulation each time such a tax is introduced.

The service tax on credit cards is not new. It was first introduced in 1997. The rate was RM50 at that time. A year later, there was a 4% drop or a reduction of 90,000 cards.

It was abolished in April 2001 to increase domestic spending. There were some three million new cards issued that year.

The number of cards increased by 46.7% to 4.4 million in 2002 and then to 5.1 million the next year.

The tax was then reintroduced in 2010 to widen the government’s revenue base. The annual rates were RM50 on each principal credit card and charge card, and RM25 for a supplementary card.

The number of cards plunged from 11.103 million to 8.7 million – and the numbers kept decreasing until 2014 – with only 8.19 million cards in circulation.

The service tax was dropped once again when the Goods and Services Tax (GST) was introduced in April 2015, which sent the number of cards soaring by 565,000 the same year itself.

The number grew to 9.3 million in 2016 and 9.99 million last year.

Tax advocate and solicitor Dr Choong Kwai Fatt said that the RM25 service tax served to deter the public from spending unnecessarily.

He said there would not be a knee-jerk reaction from the public as the value and privileges derived from the credit card well exceeded RM25.

“Most of the credit card providers also have reward point systems and redeemable gifts. Using these points will offset the RM25,” he said, adding that providers would also subsidise the amount directly by giving cash vouchers or through indirect means such as offering more gifts or benefits.

“Most of the credit cards out there require the applicant to have an annual income of at least RM24,000 to RM30,000, which is a monthly salary of RM2,000 to RM2,500.

“A RM25 service tax translates to only 0.1% of their annual income so it really doesn’t affect them that much,” a bank spokesman said.

A check on an online banking portal of another bank showed an option for cardholders to convert their reward points to offset the RM25.

Another bank spokesman said those with multiple cards might be looking to terminate their inactive cards, especially if their providers were not willing to absorb the RM25.

“If you have one or two cards, it might be insignificant. But for those with like 10 cards, they might reconsider,” he said.

Service tax of RM25 per card per year is to be imposed on the issuance or renewal of a principal or supplementary credit card or charge card beginning September.

CIMB Group Consumer Banking regional head of cards, retail assets and deposits Vipin Agrawal said the SST was an official tax by the government and as such, all payments would be passed to it.

“The tax will not be absorbed by the bank,” he said. However, Agrawal said CIMB would continue to run a range of promotions and deals on its cards.