The Association of Banks in Malaysia (ABM) said today it has been extended a copy of the guidelines issued by the Ministry of Finance on 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 Jan 1, 2010 as announced in the 2010 Budget speech.

In a statement today, ABM said the service tax would 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," it said.

ABM said banks and other card issuers were allowed to enter into arrangements where cardholders may apply redemption/reward points or rebates they earned through using their cards for the payment of the service tax. It said service tax became chargeable at the time when the credit card or charge card was 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 one year
Say, a credit card or charge card is issued to a new cardholder on Jan 10, 2010 with a validity period of one year expiring on Jan 9, 2011. A service tax of RM50 would be chargeable on Jan 10, 2010, the date of issue of the card.

Example 2: Case of a new credit card or charge card issued which is valid for five years
Say, a credit card or charge card is issued to a new cardholder on March 8, 2010 with a validity period of five years expiring on March 7, 2015.

A service tax of RM50 would be chargeable on March 8, 2010, the date of issue of the card and on every subsequent anniversary date, March 8, 2011; March 8, 2012; March 8, 2013 and March 8, 2014.

Example 3: Case of existing credit card or charge card which is valid for five years
Say, an existing cardholder has a card that was issued to him on May 18, 2008 with a validity period of five years expiring on May 17, 2013. No service tax would be chargeable on its anniversary date May 18, 2009 in view of the fact that imposition of service tax will only be effective Jan 1, 2010. A service tax of RM50 will however be chargeable respectively on May 18, 2010; May 18, 2011 and May 18, 2012.

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 Smart Pay)
• 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)

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

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.