'Gov't can't stop telcos from passing on tax'

The government has no powers to stop telecommunications companies from levying a six percent charge on the prepaid mobile phone service.

Chartered Taxation Institute Malaysia president SM Thaneermalai said the tax introduced in 1998 is in fact a consumption tax which is passed on by other service providers.

However, he said the government can still stop consumers form being charged, by removing the tax as a whole.

"(The finance minister) can take this to cabinet and use ministerial powers to (give exemption) as provided in the Service Tax Act (1975)," he said when contacted.

This option may, however, not be too palatable for the government in light of its growing budget deficit. It is estimated to collect about RM750 million from taxing prepaid mobile use.

Besides this, he said, the government could try to exert its powers over the telecommunications companies via its agencies, to deal with the pass-on decision which is causing an outcry.

"The Malaysian Communications and Multimedia Commission licenses other parts of the telcos' businesses like the 2G and 3G services, so they may prefer not to step on the MCMC's toes," he noted.

Yesterday, the Information, Communications and Culture Minister Rais Yatim (right) had announced that telcos havepostponed their decision to make consumers foot the service tax.

This came after Prime Minister Najib Abdul Razak expressed concern that the decision would further burden the rakyat in light of escalating inflation. He also claimed that the government was ignorant of their decision.

Old tax, higher rate

The PM's statement opened the floodgates of criticism from the opposition, who said Najib should be aware of the impact of the service tax since he had announced when tabling Budget 2011.

This received rebukes from BN backbenchers like Kota Belud parliamentarian, who tweeted that the tax had been introduced under the watch of then finance minister and now Opposition Leader Anwar Ibrahim.

Agreeing, Thaneermalai said the telecommunications service tax had been introduced in 1998.

"The only thing new about it is that (from) Jan 1, it was raised to six percent...The telcos have absorbed this tax for fear of competition, but have now to come together and decided to pass it on.

"The manner in which it was done may have left consumers unprepared, but telcos have the right to pass on the tax.”