Telcos and GST

From the Edge

 According to a leading English daily, Customs Department GST director Datuk Subromaniam Tholasy said several telcos are being investigated for increasing the price of prepaid top-up cards in light of the 6% goods and services tax (GST). He says this went against the Customs Department’s instructions for prices to be maintained even after GST comes into effect.

This comes as a surprise as there was no publicly announced directive on this previously. Speaking to our industry sources, we understand there is no contention over the charging of GST as mobile communications services is a standard-rated item under the GST Act 2014.

It appears the dispute with the Customs Department revolves around its demand that telcos maintain the prices of top-up cards and instead factor in GST through a reduction in the reload credit. However, telcos are resisting this as it would result in odd reload credit amounts (for example RM10 for RM9.44 reload credit) and it may negatively impact consumer’s usage levels. Telcos says they should be left to dictate how they sell their products as long as they comply with the GST Act.

Well, I'm not sure what the big deal is here.  Telcos seem are able to charge a higher price and thus will do so as prepaid cards are standard rated.

This much confusion just serves as a reminder how horrible GST implementation will be as the system is full of holes, politics, and confusion.  This will be a hard year as people are increasingly confused about items that are zero rated, etc.  Controlling price increases is something the government is trying to do, but it won't be effective.

The only way someone would absorb the GST is if their business was suffering from competitive pressures.  Telcos are in an oligopoly.  Malaysia has bred a business environment which is full of large incumbents where barriers to entry in industries is high.  Therefore, prices will go up when taxes go up, as these companies have pricing power.