Fomca: Financial access at risk

The Star

5 days ago

PETALING JAYA: Ahead of the implementation of service tax on financial services on July 1, groups have voiced concerns, saying that this is likely to drive up costs for businesses and the regular people.
Federation of Malaysian Consumers Associations (Fomca) vice-president Datuk Indrani Thuraisingham said ordinary Malaysians would be the most impacted by the 8% service tax on fee-based financial services.
Indrani said the small charges may seem as a trivial amount but it is a huge sum when multiplied by the millions of transactions.
'When Malaysian banks are riding on massive profits and control trillions in assets, why should struggling consumers be asked to chip in more.
'This is taxing basic financial access, not luxury,' said Indrani.
Indrani called on Bank Negara Malaysia and the Finance Ministry to immediately review this new ruling.
'The principle of consumer fairness must be upheld,' said Indrani, adding that banks should absorb part of this tax, especially on low value and high-volume services.
Indrani also said consumer groups should be given the space to scrutinise every fee schedule so that banks should be held accountable and thereby prevent opportunistic fee hikes disguised as tax adjustments.
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'If this goes ahead unchecked, the government can expect deeper financial exclusion, rising household debt and widening inequality,' she said.
Fomca secretary-general Saravanan Thambirajah said the announcement by Putrajaya raises concerns for everyday consumers on how this would affect their financial service experience.
'In real terms, this tax means that consumers will see higher charges for many common services offered by banks.
'Even services used by small businesses and self-employed individuals such as overdraft facilities, bank guarantees and remittance services are likely to be affected,' said Saravanan.
Saravanan also said there is a concern that this move would set a precedent for banks to gradually increase fees under the guise of tax compliance.
'Once consumers grow accustomed to higher charges, more subtle fee revisions should be introduced over time,' said Saravanan.
SME Association of Malaysia national president Chin Chee Seong said as the 8% service tax rate predominantly affects commission-based financial services, SMEs are likely to see an increase in cost of doing business.
Chin said businesses are already bracing for the SST on commercial rental and leasing services, barring which rental costs have already increased by 20%-30% from a year ago.
'On top of that, they will also be dealing with the mandatory 2% Employees Provident Fund contribution for foreign workers and the restructuring of electricity tariff.
'The cost of doing business is getting higher and higher. It will definitely affect our cashflow. It doesn't look good for the industry and the economy,' Chin said.
'If all of these are coming together, how are we going to plan our next few months especially as we have passed the mid-term. It is going to be tougher for us to do business,' Chin added.
Chin said there has to be more clarity on certain aspects of the tax system for instance on the RM500,000 threshold on taxable financial services.
'Items such as luxurious items, (imported) fruits, I think that is clear cut and they can go ahead. But when it comes to financial services such as leasing and rental, I think that should be deferred first,' he said.
'The government should understand that we are not against their policies but these policies must be more considerate of the difficulties of doing business. The cost of doing business is high while consumer spending is low,' Chin said.