Agencies call for review as credit card take-up plunges

October 31, 2009 2:00 pm Diana Finance, Money, News

AGENCIES that help banks market their credit cards have seen the take-up rate for new cards plunging 80 per cent, since the government announced the re-introduction of a RM50 service tax for credit card a week ago.

In a press conference called in Kuala Lumpur yesterday, some 40 credit card agencies, representing 3,000 agents around the country called for the government to either scrap, or review the implementation of the service tax.

“As of now we really cannot estimate the magnitude of the damage that will be done as the months pass by,” Titanium Alliance Sdn Bhd executive director H. K. Tan told reporters.

It is estimated that some 80 per cent of credit card sales agencies may go bankrupt with the ruling, as they fail to get the economies of scale for its promotion work, due to the drop in volume. Credit card agencies spend around RM300 a day for a promotion booth in shopping malls. For exhibitions, credit card agencies can spend up to RM2,000 a day for their booth.

It is understood that the tax is a resurrection from eight years ago. It was scrapped to increase spending among consumers. In 1996, the government introduced the RM50 service tax to curb the extensive use of the payment tool. In 2001 however, the government abolished it.

The agencies which also plan to set up an association to take care of its interests, plan to send a memorandum to the government once details of the service tax are revealed in November by regulator Bank Negara Malaysia.

On an average, an agent can sign up between 40 and 45 new credit card holders in a month. However, only around 25 credit cards are approved in a month.

“We request that if the government insists on going through with the tax, it should only tax for membership renewals and waive it for newly issued credit cards, in a move to help credit card agents like us,” Tan said. A suggestion has also been mooted that the rate of service tax be fixed according to the credit card’s credit line.

At a default rate of 2.5 per cent, the credit card industry in Malaysia is among the healthiest in the world, compared to places like the US, where default rates are as high as 10 per cent and Japan, where default rates are 20 per cent. There are 18 credit card issuers in Malaysia, 16 of which are banks.