On September 1 Malaysia implemented the controversial Tourism Tax (TTx) for foreign tourists, a RM10 (US$2.40) daily levy on hotel accommodation, much to the chagrin of the industry given that many questions remain unanswered.
There is no clarity yet on how the tax should be collected even though hotels have been made responsible for the collection and budget hotels, whose rates are already low, are worried the levy will turn away guests.
The new rule calls for foreign tourists to be charged RM10 per night per room in all accommodation except for premises with fewer than five rooms. There are some exemptions for example, accommodation run by federal/ state governments or statutory bodies for education, training or welfare purposes. Malaysians are exempted.
Malaysia’s tourism and culture minister Dato’ Seri Mohamed Nazri Abdul Aziz said the new tax was needed for tourism promotion due to cutbacks in federal funds.
The ministry expects to collect RM210 million (US$50 million) annually from the tax’s implementation, and RM20-RM30 million (US$4.8-US$7.1 milion) to in the fourth quarter of this year.
According to Nazri, state governments will collect RM1 (US$0.25) for every RM10 for promoting tourism in the state. The rest will be used by the federal government for marketing, development, for hosting tourism events in the country, as well as to bring more local cultural groups abroad.
An estimated 4,000 hotels nationwide are doing the collection manually for now. Malaysian Association of Hotels (MAH) president Sam Cheah Swee Hee was reported as saying that many hotels are not ready to install the collection system.
Calls have been made by hoteliers to give them more time to adjust their accounting and management software.
The Customs Department has given hotels a grace period of one month to implement the tax collecting system. To date only about half of the estimated 10,000 accommodation providers have registered with the finance ministry for the TTx.
While a tourism or hotel tax is not new, it is the manner in which this new tax has been announced and implemented that has caused complaints and raised concerns.
The three main hotel associations — Association of Hotels (MAH), Malaysian Association of Hotel Owners (MAHO) and Malaysia Budget Hotel Association (MyBHA) – sent a joint memorandum in July to Minister of Finance (MOF), the Royal Malaysian Customs Department (RMCD) and MOTAC expressing the industry’s concerns.
The chief concern was ensuring a fair and equitable way of implementing the tax and making hotels ‘tax collection agents’.
MAH president, Cheah Swee Hee, said that the tax “is not fair and equitable as it does not appropriately capture all participants in the market place nor does it tax equally the participants that are subjected to the tax.
“Under the current model, hotel operators that have been registered with the ministry of tourism and culture (MOTAC) are automatically included in the scope of the tourism tax. However, based on data that is available on MOTAC and what is available from other publicly available sources, we have identified that less than 15% of accommodation providers in Malaysia are registered with MOTAC.”
The Malaysian Association of Tour and Travel Agents (MATTA) called for a review of the lower class category accommodation providers and budget hotels as there could be an increase of between 5% to 30% of the room rate due to the tax, which would also affect long-stay budget travellers, said its president Datuk Tan Kok Liang.
Regardless, TTx is now a reality in Malaysia. As one industry observer commented: “While the concerns are valid, the industry will come to terms with it. Look at how the country reacted when the Goods and Services Tax (GST) was introduced.
“Every doom and gloom scenario was painted then. Look at it now – the GST is running smoothly, the tax sent to the Customs Department on time and the public generally has embraced it, albeit with less spending power.
“I believe the TTx implementation will be smoothly carried out in time. RM10 is not much vis-à-vis foreign currencies, and I am sure foreign tourists will accept it, and won’t mind paying a bit more to stay in a destination they enjoy holidaying in.”