PETALING JAYA: The deferment of the 6% service tax on prepaid lines has created uncertainty for telecommunications companies, according to research analysts covering the sector.

Telecommunications companies have been absorbing the tax on mobile prepaid services since its introduction in 1998 but the move to pass on the 6% service tax to customers for purchases of prepaid reloads and prepaid starter or SIM packs was supposed to be effective this Thursday. The telco companies decided to defer passing on the service tax on prepaid users.

ECM Libra Investment Research head Bernard Ching said this would not be the end of the issue.

“We will wait for further announcements. DiGi.Com Bhd would have been the biggest beneficiary of the move but we still maintain our buy' call on DiGi's stock,” he said.

In a recent ECM Libra Investment report, it was noted that DiGi had the highest proportion of prepaid revenues as a percentage of total revenues at 73%.

An industry observer pointed out that issues concerning the absorption of the 6% service tax on prepaid lines were still unclear, citing an online news report that speculated the tax might eventually be only imposed on prepaid starter/SIM packs.

“There are still issues to be discussed with the Malaysian Communications and Multimedia Commission such as the period of the deferment and who will ultimately absorb the service tax,” he said.

In a note yesterday, Kenanga Research said: “Should telecommunications companies decide to continue absorbing the prepaid service tax, we will lower our financial year 2011 to 2013 earnings' forecasts and target prices to pre-service tax announcement level.”

Kenanga Research maintained its neutral' rating on the telecommunications sector.

Another analyst with an investment bank said it was back to square one for telecommunications companies, and maintained his “neutral” call on the sector.

“The suspension of plans to impose the prepaid service tax on consumers is not that significant to investors and fund managers, as telecommunications stocks are seen as defensive in this volatile market. To date, telecommunications companies have done well compared with many other sectors.”

Meanwhile, another industry observer said telecommunications companies were unlikely to pass on the 6% service tax to prepaid consumers in the future.

“The companies are likely to continue in absorbing the tax. Perhaps the Government may provide them with some incentives.”

DiGi's share price closed 30 sen lower at RM31.70 yesterday, with 684,700 shares traded.

Other telecommunications stocks dipped slightly with Maxis Bhd's shares falling 3 sen to RM5.39 on 1.25 million shares traded and Axiata Group Bhd shares fell 1 sen to RM4.78 with 8.3 million shares traded. Shares of Telekom Malaysia Bhd dropped 6 sen to RM4.23 with 7.9 million shares traded.