We call for the removal of the RM50 credit card tax since it has not only failed to reduce credit card debt as intended, but instead have added to the misery of debtors
The latest Bank Negara Malaysia (BNM) report on the country credit card debt proves that the Government’s introduction of a RM50 tax for every principal card holder and a RM25 tax on a supplementary card holder has failed to reduce the population’s credit card debt in January 2010.
As shown in the statistics given by BNM (table below), after the introduction of the credit card tax, the number of credit cards in circulation has dropped by 19.4% from 10.8 million in December 2009 to 8.7 million in October 2010. The amount of credit extended has also reduced marginally from RM115.9 billion to RM113.8 billion over the same period.
However, despite the respective reductions in number of cards and the amount of credit extended, the current outstanding balance has increased by 10.4% from RM24.3 billion to RM26.8 billion. Worse, the outstanding balances which are more than 6 months overdue have increased by 12.9% from RM62.1 million to RM70.1 million.
When the 2010 Budget was debated in Parliament at the end of 2009, I had appealed to the Finance Ministry to reconsider the proposal to impose the credit card tax on cardholders as it will be completely ineffective in the Government’s battle to reduce credit card debt. Instead, all it will do is to add to the burden of those who are already laden with debt.
In addition, the introduction of the credit card tax will also result in value-destruction as financial institutions have spent tens of millions, if not more, to build their customer base. As a result of the tax, it is the cardholders who are not indebted that was able to terminate their cards, and this is proven with the statistics above, showing a steep decline in cardholders, but not the outstanding debt.
However my arguments in Parliament were dismissed by the Deputy Finance Minister then, Datuk Chor Chee Hueng.
What the Government should do instead is to introduce new measures to ensure that only those who are able to manage their finances are qualified to apply for credit cards. For example, the move to increase the minimum income level from RM1,800 per month to RM2,400 is a good start to reduce credit card delinquencies. In addition, BNM should set strict guidelines to banks to ensure that credit limits should not be easily increased for cardholders who are not disciplined in debt repayments. Measures could also be introduced to penalise banks for granting excessive credit limits to those who are not financially able to ensure that such abuse are kept to the minimum.
With this set of information proving that the RM50 tax is completely ineffective in the Government’s battle against credit card debt, we call upon the Finance Ministry to immediately reverse the tax in order to not add further to the burden on cardholders who are already in debt, and paying high interest rates for their outstanding balances. In addition, the removal of the tax will enable the financial institutions in the country to compete more freely in the provision of credit card services to those who are facing no difficulties in managing their personal finances.