By G. Sharmila
The communication and multimedia minister announced yesterday that prepaid mobile reloads will be priced at RM10 for RM10 credit with GST deducted upon usage. Tiger thinks prepaid users are at the losing end of the government’s new arrangement with the telcos.
Tiger woke up this morning with a bad taste in her mouth. The last thing she read before going to sleep yesterday was an article in Bernama quoting Communication and Multimedia Minister Ahmad Shabery Cheek announcing that the cabinet had agreed that the goods and services tax (GST) for mobile prepaid reloads will be deducted according to usage.
Under the new pay-per-use GST system, the chargeable GST amount is taken out of prepaid credits. Thus, out of a RM10 reload, consumers only get RM9.43 worth of actual prepaid credit.
Ahmad Shabery described the cabinet decision on the matter as a “win-win situation” for consumers and the government, as users are currently paying RM10.60 for RM10 worth of prepaid credit. He also said the government has given telcos up to six months to adjust their systems to reflect the change and has told them to reduce their service tariff. In the meantime, the current system will remain as is.
The decision has raised the ire of DAP lawmaker Tony Pua, who today said in a statement that all telcos are raising prices by a uniform 6% at the same time, which he said breaches the competition clauses of the Communication and Multimedia Act 1998. (Prior to April 1, telcos were absorbing the 6% service tax, thus prepaid users received RM10 credit for every RM10 spent.)
According to Pua, under Part IV (Economic Regulations), Chapter 2 (General Competition Practices), Clause 133 of the Act, telecommunications providers are prohibited from “entering into collusive agreements”. It says that a licencee shall not enter into any understanding, agreement, or arrangement, whether legally enforceable or not, which provides for rate fixing and market sharing, among other terms.
Pua also noted that last year, despite absorbing the 6% service tax, Maxis Communications Bhd, DiGi.Com Bhd and Celcom Axiata Bhd collected RM12.8 billion in total in prepaid mobile service revenue. “Why is the BN government helping these highly profitable companies make an additional estimated RM770 million in profits?” he questioned.
Now, as a rule, Tiger does not like to take sides. But she is going to make an exception in this case and take the side of the consumer. Analysts say that with the new arrangement, prepaid users are likely to pare down their prepaid usage, but it remains to be seen how much this will affect the telcos’ bottom line.
Some research houses, like Alliance DBS Research, said today that the telcos will enjoy the same revenues. It said it will likely trim its FY15-FY16 earnings forecast for mobile operators by 2%-5% as it had previously assumed a 3% increase in prepaid revenue. Meanwhile, AmResearch said in a report today that it had factored in a 3% GST pass-through for the telcos in its projections instead of a full 6% and thus has not made any changes to its numbers.
So effectively, telcos are still making more money off prepaid users because, for the next six months at least, they will be charging the 6% GST to prepaid users (ie prepaid users will be paying RM10.60 until the telcos implement the new system).
On top of that, it should be noted here that telcos make money right off the bat with the new prepaid GST arrangement because prepaid users pay the RM10 up front. The telcos, on the other hand, pay the GST to the government only once usage kicks in, which is good for their cash flow. And if the prepaid card expires, they get to keep the GST too! Now that’s downright foolish.
Tiger’s take on the cabinet’s decision is that it isn’t fair to the prepaid users, because they are still paying the 6% GST for using prepaid reloads. What difference is it really from making them pay RM10.60 for prepaid usage? The telcos still gain financially from this new arrangement, and so does the government. (Ahmad Shabery was reported saying by The Sun newspaper that the prepaid economy is worth RM15 billion a year.)
So effectively, prepaid users (like their postpaid brethren) are now paying 6% GST, when previously, the 6% service tax was absorbed by the telcos.
Tiger doesn’t have a problem with them paying the GST – after all, they are now paying GST to banks, restaurants and retailers.
What Tiger doesn’t like is that after all the talk of helping the people, the government is still charging GST to prepaid users, which makes the previous flip-flopping over the prepaid GST issue utterly pointless. This not only makes prepaid users the losers in this scenario, it is also an insult to their intelligence.
Tiger is not a fan of populist moves, but this new GST arrangement is so far removed from populism that Tiger’s sensitivities have been offended. If the minister truly wanted to be populist, he would make the telcos absorb the 6% GST for prepaid mobile reloads, as they had been doing all this while with the service tax. If he wanted to be truly populist, he would have gone one step further and made them do this for both prepaid and postpaid mobile users.
However, the reality is that the new arrangement is just an exercise in helping the telcos maintain their profit margins and the government obtain its GST revenue. So there’s no option left for the people but to pay the 6% GST and quietly move on with their lives.
It will be interesting to see how much the telcos will reduce their service tariffs by and how much it will make a difference to the man on the street, as our mobile rates are currently still among the highest in the region.
Perhaps it is time that the regulator stepped in to ensure that mobile rates are lowered substantially – maybe even open up the market further to introduce new blood and healthy competition to drive mobile rates down further. Now, that would be a populist move, but at least it would not be a thinly veiled insult the new prepaid for GST arrangement is to prepaid users.
GRRRR!!!
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