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Foreign Tourists, Are You Ready for Tourism Tax in Malaysia?

BY Caitlyn Ng

Updated 13 Nov 2019

August 1 is merely a few days away at the time of this writing, but what significance could this particular day possibly hold? Malaysia is about to witness a new tax implementation, that’s what.

If you’re now only waking up to this piece of information, worry not, for Malaysians won’t have to pay for it. In fact, it’s just the foreign tourists who will have to fork out for the Tourism Tax (TTx). What does this mean though, and what sort of impact will it have on one of the key driving forces behind Malaysia’s economy? 

What's covered in this article?

Here’s a quick refresher course on the TTx, from the beginning till today:

1) The new TTx was announced by the Minister of Tourism and Culture, Datuk Seri Nazri Aziz on June 9, and was slated to come into effect on July 1. Rates ranging between RM2.50 to RM20 (depending on the rating of accommodation, refer to table below) were to be applied at all premises registered by the Commissioner under the Tourism Industry Act 1992.

The hotel operators will function as ‘tax collectors’, and this tax is on top of the 6% GST already in place.

According to Nazri, if there was an occupancy rate of at least 60% at the more than 11mil ‘room nights’ countrywide, the tax would be able to bring in roughly RM655mil. A higher occupancy rate, for example 80%, would bring in roughly RM873mil. The funds will go towards tourism infrastructure development, in addition to protecting, preserving and conserving the environment, culture and heritage of Malaysia.

However, there were some properties which were to be exempted from this, such as homestays, kampung-based accommodation, and premises with fewer than 10 rooms.

2) An amendment to the TTx was made on June 22. Instead of local tourists being taxed on any of the registered accommodation in the country, those who choose three-star hotels and lower-grade lodgings will be exempted. The enforcement date is still set for July 1.

“The collection of tax would be handled by the Customs Department, which has a system in place for the classification of hotels. The revenue collected would be used to promote Malaysia overseas and upgrade tourism facilities,” said Tan Sri Dr Mohd Irwan Serigar Abdullah, who is the Treasury secretary-general.

3) A (hopefully) final amendment to the TTx is announced on July 26, this time bearing good news. Malaysians are fully exempted from the tax across all classifications of accommodation, whereby only foreign tourists will be required to pay for all the types of lodgings. Nevertheless, they will only need to pay a flat-rate of RM10, instead of the earlier staggered system.

It is also now compulsory for accommodation providers with five or more rooms (under the same owner) to register with the Tourism and Culture Ministry so that they will be taxed. How this works: even if an operator of a homestay has a few houses under his/her name but each one has less than five rooms, the aggregated amount for all properties would be more than five.

Nazri has now placed the estimated amount of returns at roughly RM211mil a year, based on the aforementioned occupancy rate of 60%. The enforcement date is tentatively set for August 1.

A few taxing concerns

When the TTx was first announced, all the accommodation providers already registered were automatically included in the new tax’s radar. But Sam Cheah Swee Hee, who is the Malaysian Association of Hotels (MAH) president, pointed out that there are more unregistered providers than there were registered ones.

“In terms of numbers, there are 3,126 accommodation providers that are registered with the Tourism and Culture Ministry (Motac). However, there are 9,578 accommodation providers listed on the hotel booking site and a further 11,698 accommodation providers listed on Airbnb,” he explained.

It would take a significant amount of resources for the Royal Malaysian Customs Department (RMCD) to identify these unregistered providers so that they would fall under the TTx as well.

In the first version of the TTx, exempted premises also included those with less than 10 rooms; this meant that Airbnb operators (at average with only two rooms) would be able to enjoy the tax exemption. It led to the concern that the registered accommodation providers would see a drop in occupancy rates as tourists flocked to the unregistered ones, or the many Airbnb operators instead.

With the third amendment, the concern above would surely be allayed, right? Even Airbnb properties will now be subjected to the TTx, but only for those with more than five rooms under the same owner.

However, new concerns have now cropped up. What if the foreign tourists somehow find a loophole around the TTx, by asking their local friends to book the rooms for them? Will there be new local (illegal) businesses sprouting up just to cater to these booking purposes? How about the accommodation providers who decide to register their various properties under the names of family members so that they can escape the TTx?

Tourism tax locally vs. abroad

A few parties had voiced their concerns over the TTx implementation, namely Datuk K.L. Tan, who is the vice-president of the Malaysian Association of Tour and Travel Agents (MATTA).

“The 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,” he said.

He further went on to explain that our neighbours – Thailand and Singapore – are ahead of Malaysia in the tourism sector, and that “putting up more barriers may deter tourists from choosing Malaysia as a preferred destination”.

However, that is not always the case according to Nazri, as the World Tourism Organisation (WTO) has recorded that the countries who decided to implement a similar tax saw a healthy growth in their tourism performance. This was because of the extra stream of funds to finance improvements in facilities and infrastructure.

“The tourism tax implemented in countries like Singapore in 1973, the United States in 1987, Thailand in 1992, Japan in 2002, Holland in 2007 and Italy in 2015 proved that in the long-term it can contribute to the positive growth in the tourism sector. Countries like Singapore, Thailand and Japan saw their tourist inflows increased 24mil to 29mil, 11mil to 13mil and 13mil to 19mil respectively, from 2014 to 2015,” he said.

To conclude

Tourism Malaysia’s official website paints a cheery picture of Malaysia’s tourism industry. In the year 2016, tourist receipts in Malaysia amounted to RM82.1bil as compared to RM69.1bil in 2015 (approximately 19% increase). As for the tourist arrivals, there were 26.8mil people in 2016 as compared to 25.7mil people in 2015 (approximately 4% increase).

The World Tourism and Travel Council (WTTC) has a similarly optimistic outlook for Malaysia: the direct contribution of travel and tourism to Malaysia’s GDP is forecasted to rise by 4.2% this year, as compared to RM58bil (which was 4.7% of the total GDP) in 2016.

The numbers from both sources look really good but only time will tell if this tourism tax will have any adverse impact on tourism traffic to Malaysia, or provide a sustainable fund for the future development of the tourism industry.

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About the Author

Caitlyn Ng


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