Prepaid recipe for chaos- The Malaysian Insider
September 1, 2011 — Recent moves by telcos to pass on the government service tax to consumers have come in from heavy criticism from the government, including the prime minister, who says that the move will adversely impact a public already under pressure from the increase in food prices and overall inflation.
While it is undeniable that the move will have a disproportionate impact on lower income groups as they constitute the primary prepaid mobile user base, it might be worth the while to examine who really is at fault here.
The tax is imposed by the government on certain categories of service providers in Malaysia, from hotels, restaurants, private hospitals, golf courses, massage parlours, architects, lawyers and accountants to of course telecommunication service providers including Astro.
In 2007, the threshold of RM150,000 under which service providers were exempt from paying service tax was abolished and from 2008, irrespective of quantum of business, tax has to be paid if applicable.
It seems odd that a tax imposed by the government to raise revenue to the tune of approximately RM5 billion in 2011, which impacts a broad spectrum of service providers from small independent professionals to large corporations, is now being selectively opposed by the same government because of its negative impact on consumers.
It is not as if the government is waiving a tax it has imposed in order to alleviate the burden on the rakyat. It is expecting one particular category of service providers to voluntarily absorb the tax while still expecting them to give six per cent of their revenue to the government.
By what rationale are mobile prepaid users more vulnerable to those who eat in restaurants or those who watch pay TV or take golf lessons? Why is a tax imposed by the government itself now being opposed by the same government?
If the government is really serious about this, it should follow its own business friendly precedent of providing compensation to toll road operators in exchange for preventing their scheduled toll rate hikes.
The global world of business that Malaysia is actively courting to help it achieve developed nation status by 2020 is a world that thrives on certainty of operational rules.
When a patently unfair change of the rules is imposed on one business, it negatively impacts the perception of the country in the eyes of the international business community as a whole.
In this scenario, the recent statement by the Information minister that telcos should reconsider their decision to pass on the service tax to consumers as some of them had been reaping profits of RM800 million to RM1.2 billion a year is patently absurd.
If the government is going to say that excessive profits are bad, it should stop bashing communist ideology as vehemently as it has been doing recently. The goal of any business is to make money. By the minister’s logic, that is a bad thing. Is the government anti-capitalist now?
In any case there is a kind of self correction built into the capitalist revenue model. Rising prices can lead to erosion in demand. Specifically in the case of telcos where base services are commoditised and price driven, it is not inconceivable that one of the players may unilaterally absorb the service tax to gain competitive advantage and all others are forced to follow suit.
But this kind of ill considered, knee jerk response from the highest echelons of power bodes ill for the future of the Malaysian economy. If the government is really serious about limiting the impact of rising inflation and slowing consumption, there are a range of policy options available to it, including suspending the collection of service tax across the board for a limited period if it so desires.
In any case, if my Hotlink bill remains the same, can my Astro bill also go back to pre-service tax levels?
While it is undeniable that the move will have a disproportionate impact on lower income groups as they constitute the primary prepaid mobile user base, it might be worth the while to examine who really is at fault here.
The tax is imposed by the government on certain categories of service providers in Malaysia, from hotels, restaurants, private hospitals, golf courses, massage parlours, architects, lawyers and accountants to of course telecommunication service providers including Astro.
In 2007, the threshold of RM150,000 under which service providers were exempt from paying service tax was abolished and from 2008, irrespective of quantum of business, tax has to be paid if applicable.
It seems odd that a tax imposed by the government to raise revenue to the tune of approximately RM5 billion in 2011, which impacts a broad spectrum of service providers from small independent professionals to large corporations, is now being selectively opposed by the same government because of its negative impact on consumers.
It is not as if the government is waiving a tax it has imposed in order to alleviate the burden on the rakyat. It is expecting one particular category of service providers to voluntarily absorb the tax while still expecting them to give six per cent of their revenue to the government.
By what rationale are mobile prepaid users more vulnerable to those who eat in restaurants or those who watch pay TV or take golf lessons? Why is a tax imposed by the government itself now being opposed by the same government?
If the government is really serious about this, it should follow its own business friendly precedent of providing compensation to toll road operators in exchange for preventing their scheduled toll rate hikes.
The global world of business that Malaysia is actively courting to help it achieve developed nation status by 2020 is a world that thrives on certainty of operational rules.
When a patently unfair change of the rules is imposed on one business, it negatively impacts the perception of the country in the eyes of the international business community as a whole.
In this scenario, the recent statement by the Information minister that telcos should reconsider their decision to pass on the service tax to consumers as some of them had been reaping profits of RM800 million to RM1.2 billion a year is patently absurd.
If the government is going to say that excessive profits are bad, it should stop bashing communist ideology as vehemently as it has been doing recently. The goal of any business is to make money. By the minister’s logic, that is a bad thing. Is the government anti-capitalist now?
In any case there is a kind of self correction built into the capitalist revenue model. Rising prices can lead to erosion in demand. Specifically in the case of telcos where base services are commoditised and price driven, it is not inconceivable that one of the players may unilaterally absorb the service tax to gain competitive advantage and all others are forced to follow suit.
But this kind of ill considered, knee jerk response from the highest echelons of power bodes ill for the future of the Malaysian economy. If the government is really serious about limiting the impact of rising inflation and slowing consumption, there are a range of policy options available to it, including suspending the collection of service tax across the board for a limited period if it so desires.
In any case, if my Hotlink bill remains the same, can my Astro bill also go back to pre-service tax levels?
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