Don’t burden prepaid users with service tax

CELCOS should not pass on the 6% service tax to mobile prepaid users just because they see it as a burden now.

It is very unfair to first cajole users onto the network, allow them to get used to mobility and later pass the tax to them. Celcos should have thought about the repercussions of carrying the tax burden and not later decide that their profit margins do not allow them to absorb it.

Some are not wrong to say that “When it benefits them, they'll absorb it. When it does not and it makes them uncomfortable, they vomit it.''

All this while, the celcos claim that they have been absorbing the 6% service tax for mobile prepaid users. This tax is paid to the Government. Some people say the trigger point for the reversal is the rise in tax rate from 5% to 6% early this year.

The celcos want to pass the tax to users. Tune Talk made it public two months ago that it would do this on July 1. But little did the industry realise that the move will not go down well with users. The deadline has been deferred to Sept 1.

Call rates have come down from a high of 60 sen a minute to 12 sen-18 sen and that means prepaid margins for celcos are far lower than what they used to be. But let us not forget that these celcos also earn the highest EBITDA (earnings before interest, taxes, depreciation and amortisation) margins in the world and if they manage to pass the tax, they will save quite a bit.

The Malaysian Handphone Users Association president Mohd Ali Ibrahim is against the passing of the tax to users. He feels the parties involved the association, the telcos and the regulator should sit down to find ways not to burden the consumers, who he believes are already burdened with a high cost of living.

Postpaid users pay their own taxes but for prepaid, the service providers say they have been absorbing the cost. The questions to ask are whether it is a full absorption or whether the tax is bundled in the call charges. We really don't know, as there is no transparency in that.

The sceptics have their own views and to them “taxes levied by the Government will be embedded in the offered price of products and services and there is no way that this will be absorbed by the businesses.''

We are talking about RM600mil to RM785mil a year for the 6% service tax that goes to the Government. That works out to more than RM200mil for each of the three big celcos Maxis Bhd, Celcom Axiata and DiGi.Com.

If indeed they absorb the cost, then it is great, but skeptics say “the likelihood is that business will make adjustments or cut corners in absorbing the cost and we believe we have a bigger issue in all these rising prices, quality of service, choice and competition and customer service delivery and appropriate content, etc. All these needs addressing.''

The passing of the tax to users means prepaid cost will be higher and “every time the Government removes a subsidy (for example, on petrol) or approve a price hike (for example, in postal or electricity tariff), it will assure that the move will not affect consumers. It warns businesses not to increase prices and it monitors but then, within six months, the prices are increased. How should societies and countries address this problem?''

This is where the authorities should ensure that consumer rights and protection is there and the same goes for the prepaid service tax issue.

It is going to be tough for those who need to decide, the regulator included, as they are looking at ways to make sure the consumers are indeed not burdened. But in the companies' eagerness to pass the cost, will the rights of consumers, especially those in rural areas, be protected?

Here again, the issue of making telecoms a utility and an essential service arises. If it is a utility like electricity and water, then the question of 6% tax will not arise. But plans to making telecoms a utility has been in the pipeline for nearly a decade and until that day, the heat is on prepaid users.