Malaysia Inbound Tourism Association president Uzaidi Udanis says greater funds will enable the tourism industry to enhance services.
The statistics on Tourism Malaysia’s website tell a reassuring story. Tourist receipts amounted to RM82.1bil last year, which is an 18.8% growth from RM69.1bil in 2015. Also, tourist arrivals last year stood at 26.76 million, a 4% increase from the previous year.
A report by the World Tourism & Travel Council, meanwhile, forecasts the total contribution of travel and tourism to the country’s GDP to rise by 4.2% this year.
The Tourism Tax (TTx) – to be implemented on July 1 this year, instead of the previously reported Aug 1 – is set to provide a sustainable fund for the development of our tourism industry.
Tourism and Culture Minister Datuk Seri Nazri Aziz reportedly said potential revenue from the new tax would be around RM654mil, if an occupancy rate of 60% can be achieved for the 11 million “room nights” available in the country. A higher occupancy rate of 80% will boost collections to RM872.8mil.
TTx, passed as part of the Tourism Tax Bill 2017, will see local and international tourists paying a levy to the operators of accommodation premises on a per-room, per-night basis.
The rates are RM20 for five-star accommodations, RM10 for four-star accommodations, RM5 for one- to three-star accommodations, and RM2.50 for non-rated accommodations, including budget hotels. It was recently reported, however, that the government may exempt the TTx on three-star hotels and below for locals.
The TTx will not apply to homestays, kampung stays, premises maintained by religious institutions for non-commercial purposes, premises operated by Federal and state government for non-commercial purposes, and premises with fewer than 10 rooms.
Hotels as ‘tax collectors’
While the tax ultimately benefits the local tourism industry, it has put hotel operators in the position of “tax collectors”. At least, that’s how Malaysian Association of Hotels (MAH) president Sam Cheah Swee Hee views it.
“The current model of the tourism tax unfairly places the burden of collecting the tax on registered hotels who are responsible for collecting and paying this to the government,” he said.
Hotel operators registered with the Tourism and Culture Ministry (Motac) are automatically included in the new tax’s scope. But Cheah pointed out that fewer than 15% of accommodation providers in Malaysia are registered with the ministry.
“In terms of numbers, there are 3,126 accommodation providers that are registered with Motac. However, there are 9,578 accommodation providers listed on the hotel booking site Agoda.com and a further 11,698 accommodation providers listed on Airbnb,” he illustrated in a statement.
Data from MAH stated there are 6,452 unregistered hotel providers and a further 11,698 operators who provide accommodation through Airbnb.
The vast number of unregistered providers, Cheah reckoned, would require a significant amount of resources on the part of the Royal Malaysian Customs Department (RMCD) to identify.
Persuading unregistered operators to register is another challenge, said Malaysian Association of Hotel Owners president Tan Sri Teo Chiang Hong.
The high compliance requirement, according to him, will hinder unregistered operators from registering. This, he said, would continue to “encourage the gap that exists between those operating in the system and those outside of it”.
A taxing issue
Teo said recent years have seen most hotels in our country achieving 35% to 40% occupancy rate – well below the projected 60% mark suggested by the minister. TTx, he said, is likely to further push down the numbers.
“It could encourage more tourists to book with unregistered and unlicensed hotels due to the lower costs,” he said, adding that a potential loophole exists whereby hotels can change their rating or operating model. Those actions would result in lower tax revenues for the government.
Malaysia Budget Hotel Association president P.K. Leong said Motac held a meeting in Kelantan recently to inform industry players of the implementation of the tax. However, no proper discussion took place between both parties. Leong said there is no transparency regarding how the funds collected will be channelled back to the industry.
“But since the money is collected by hotel operators, it should be used to improve the hospitality sector here,” he said.
Based on the directive from RMCD, Leong also deduced that Airbnb operators will be exempted.
“On average, those who operate Airbnb properties only have two rooms. Thus, they are able to enjoy exemption under the tax, which exempts accommodation with less than 10 rooms,” he said.
In an e-mail, Airbnb told Star2.com the company is having discussions with Malaysian authorities to “reach a fair agreement around the Tourism Tax”.
“Airbnb wants to pay taxes, and we’ve partnered with governments in over 275 jurisdictions all over the world to make it easier for our hosts and guests to pay their fair share,” it said.
As of May 1 this year, the company has paid over US$240mil (RM1.02bil) in hotel and tourist taxes around the world.
“We’re continuously working with governments and policymakers around the world to expand our programme and find a proper way to collect fair tax revenue from our host community – and Malaysia is no exception,” it said.
Single taxation system
Some states have implemented their own tourism charges. These are the Heritage Tax in Melaka, Local Government Fee in Penang, Tourism Promotion Fee in Langkawi, and Local Government Fees/City Tax in Kota Baru, Kelantan.
However, Nazri was reported as saying, on June 13, that the states would be asked to stop collection of their accommodation-based charges once TTx comes into effect.
On that note, Cheah said hoteliers don’t completely oppose TTx as the industry can benefit from a more sustainable fund. However, there are ways to make it less taxing for consumers.
“Don’t charge per night, but impose a one-off payment instead. Also, don’t tax the locals,” he said, adding that an electronic system can be put in place to collect TTx from foreign tourists when they go through immigration.
That call to exempt locals from TTx is echoed by Malaysian Association of Tour and Travel Agents (Matta) inbound vice-president Datuk K.L. Tan.
“Local Malaysian businesses and leisure travellers are already paying for GST and income taxes. Subjecting them to new taxes is of concern,” he said.
According to Tan, the majority of domestic travellers travel for business and other purposes, such as family obligations, medical treatment, education and religious pursuits.
“These are essential travellers and not tourists, in essence,” he said, adding that most locals don’t necessarily travel for pleasure as the definition of a “tourist” might suggest.
Tan said deferment is key to implementing TTx effectively and efficiently.
“The tourism and hospitality industry has been given significant attention as it is known to be the dominant foreign exchange revenue earner and ‘saviour’ of the Malaysian economy.
Sustainable growth
Tan also said TTx would have some effect on the country’s tourism traffic. Tourists who are price sensitive, corporate and incentive groups as well as long-haul travellers who spend longer durations in the country may be put off by the tax.
But Tan reckoned short-stay tourists, like the ones from Asean countries and China, might not be put off by the per-night charge. He added that about 75% of tourists to Malaysia come from Singapore, Indonesia, China, Brunei and Thailand.
However, he said that Malaysia’s tourism sector is trailing behind that of neighbouring Thailand and Singapore. Putting up more barriers may deter tourists from choosing Malaysia as a preferred destination.
But getting tourists in can be fixed by “making the right noise”, said Malaysia Inbound Tourism Association (Mita) president Uzaidi Udanis, referring to more aggressive promotional efforts.
However, Uzaidi said greater promotional efforts through overseas events and media campaigns don’t come cheap.
“Nobody likes taxes, but we need to be realistic about the current global economic situation. Our tourism industry needs a lot of promotion and incentive, both which can be provided with a more sustainable fund,” he offered, calling TTx a new model of co-operation between government and the private sector.
“With greater funds, our industry will be able to enhance services and tourism infrastructures,” Uzaidi said, adding that all these improvements would be eventually reaped by tourists to the country.
Uzaidi said all countries have to come up with a more sustainable plan to further develop their tourism scene.
“The tourism industry is very competitive. There’s no right or wrong timing. At this point, we have to be competitive to get tourists to visit,” he concluded.
