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The issue discussed is the imposition oI service tax 6 percent on telecommunication

services in Malaysia. As a NGO leader, I have to stand on a neutral perspective to look
into this issue.

The government is no wrong to impose service tax on telecommunication services; it is
not a new legislation created by current Parliament, in Iact the telecommunication
companies absorbed the service tax levied beIore the new policy comes in. Service tax is
levied to taxable person on taxable services perIormed in Malaysia, when the company
reaches the threshold predetermined in the Act. Thus, all telecommunication companies
are liable to pay service tax to the government.

Although it is complied with Service Tax Act 1975, this policy leads to a hot topic among
Malaysian citizens, because most oI the Malaysians are using mobile prepaid, and they
are mostly Irom lower income group. 75 percent oI the Malaysians are earning lower than
RM15,000 per month, and most oI them claimed that the new policy will increase their
burden. The action is criticized as legal but unethical, as service tax is diIIering Irom
income tax; it is applied blindly without consideration oI taxpayers` personal constraints.
One is liable to pay service tax disregard oI income level, and personal Iinancial issues.
But why only telecommunication service tax is being criticized, and not those Iast Iood
restaurants, massage services, hotel services, etc? It is due to the choices oI taxpayers.
For a lower income group, they can choose to eat at hawker stall or go Ior other
entertainments which are cheaper and no service tax is imposed. However, iI comes to
mobile prepaid, they cannot choose a telecommunication service that are not imposed
with service tax. The only way to avoid the service tax is using postpaid services, but the
cost will increase in relation to the Iixed line and broadband services provided, where the
broadband services are not necessary to certain people.

The motive oI government`s action is easy- increase the government`s revenue to run the
nation. However, this word is not convincing to the citizens as the implementation and
enIorcement problem exist in Malaysia. Due to the enIorcement problem, there are
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always loopholes in almost every policy in Malaysia. Thus, the citizens hardly to see the
beneIits oI paying the service tax, neither now nor in the Iuture. II the government`s
purpose is to collect more taxes, they should think how iI prepaid users are transIerring to
postpaid services. II the government comes out with a policy to charge service tax on
postpaid, another big issue happens again. Loopholes may happen on the new policy, as
the telecommunication companies tend to come out with a package to pay lesser service
tax and maintain the market demand at the same time.

With regard to the points above, I would like to suggest to the government that the policy
should be deIerred and implement together with goods and service tax (GST) system,
which is expected in 2013. The reason being is GST collects taxes eIIiciently Irom every
stage oI consumers. Stages oI mobile prepaid services involve only telecommunication
companies and end users. Thus, the burden oI service tax on the end users is not heavy.
Flat rate oI 3-4 is preIerable as it is lower than the current 6 service tax rate. A Ilat
rate is good because the collection oI taxes is exponential, i.e. there is more compliance
Irom the taxpayers to pay tax rather than trying loopholes to evade it. OI course, it may
have deIicit in the Iirst Iew years, but iI the compliance is good, the growth oI
government`s revenue is exponential and perhaps in the Iuture, the GST rate can be
adjusted to the lower Iigure. This is evidenced by the application oI 15 Ilat income tax
rate on Iskandar Zone, Johor.

At the same time, government should work on not only the education oI GST, but Iuture
nation planning as well in order to build up conIidence and reliance oI the public. The
taxes collected have to be beneIicial to all citizens, especially in the necessities such as
petrol and education. Citizens should be exposed to the knowledge oI public sector
accounting to keep tracks on how government uses the money to build up nation.