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Friday, September 9, 2011

Telcos to charge 6% service tax on prepaid purchases from Sept 15

Sulaiman Kamal | 3:12 AM | | | | | | Best Blogger Tips

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From Sept 15, telecommunication companies (telcos) will cease to absorb the 6% service tax on mobile prepaid services and customers would have to bear the extra cost.
In a joint statement today, eight telco providers announced that the tax will be applicable to purchases of pre-paid reloads and pre-paid starter/SIM packs and pre-paid customers were informed via SMS starting at noon.
The telcos are Celcom Axiata Bhd, Maxis Bhd, DiGi Telecommunications Sdn Bhd, Tune Talk Sdn Bhd, Merchantrade Asia Sdn Bhd, Salamfone Sdn Bhd, XOX Bhd and IMEtel.

With the charging of the 6% service tax on pre-paid services, a customer who buys a RM10 pre-paid reload will need to pay RM10.60, the 60 sen being the tax.
“Service tax is a consumption tax and chargeable to the customer, as provided for in the service tax laws. The Service Tax Act 1975 requires telecommunication companies to levy service tax at the prevailing rate on telecommunication services, including mobile prepaid services.
"This is similar to the service tax levied on food and beverage purchases from restaurants and hotels,” said the statement.
Since its introduction in 1998, the telcos said they had absorbed the tax to ensure mobile pre-paid services remain competitive compared with post-paid, given the high pre-paid rates for calls and SMS at its onset. Pre-paid rates have progressively reduced since then and is now offered at competitive rates.
theSun broke the story on May 31 that telcos would pass the tax to pre-paid customers due to dwindling revenues, cannibalised by the need to protect market share and win new customers, forcing telcos to rethink their pricing strategy.
Data compiled from the three biggest telcos – Maxis, Celcom and DiGi – show that there are about 26 million pre-paid customers. Pre-paid customers for DiGi are said to account for 82% of total subscribers, Maxis 75% and Celcom 77%.
Assuming an average spending of RM40 per month, the pre-paid segment would generate an annual sales of RM12.48 billion with RM748.8 million in service tax.
As of March 31, Celcom has 11.33 million subscribers, of which 8.72 million or 77% were pre-paid users. Its pre-paid customers generate an average revenue per user (ARPU) of about RM37 per month, compared with the ARPU of RM94 per month generated by its post-paid clients.
Maxis has 10.8 million mobile pre-paid customers as of March 31 under its old system of calculating the number of subscribers. However, the number is reduced to 9.5 million under a new stricter system, in which only customers who contributed revenue over the past 50 days are considered active users.
Maxis pre-paid customers generated ARPU of about RM34 a month, significantly lower than the ARPU of RM104 per month generated by its post-paid customers. It is estimated that 75% of its customers are pre-paid subscribers.
As of end June 2011, DiGi has 7.7 million mobile pre-paid customers which make up about 82% of its total 9.3 million customers. Its pre-paid subscribers generate ARPU of RM43 per month compared with ARPU of RM84 per month for post-paid subscribers.
Tune Talk’s 600,000 to 700,000 customers, who are 100% mobile pre-paid subscribers, generate ARPU of RM30 per month.
Its chief executive officer Jason Lo said in a report earlier that it aims to have more than one million active subscribers by year-end and 1.5 million active subscribers by mid-2012.
The telcos have decided in a coordinated move to go-ahead to charge the service tax for purchases of pre-paid reloads and pre-paid starters/SIM cards despite the government asking them to continue to absorb the tax.

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