Recent debates over the so-called Tourism Tax has turned ridiculous. It started when Minister for Tourism Dato’ Seri Mohamed Nazri Abdul Aziz denied a news report that said the implementation of the tax may be postponed. Nazri clarified that there will be no delays, and the government is going ahead with the implementation starting on 1 July this year.
Key players in the Sarawak tourism industry responded saying that the tax is bad for their state, and their minister for tourism suggested that they may refuse to implement it. Sabah very soon followed suit in the protest.
Nazri’s reaction to the Sarawak Minister for Tourism Abdul Karim Rahman Hamzah was astonishing. Rather than responding like an adult to the protest, he chose to be a thug, arrogantly telling off his Sarawak counterpart. Nazri also implied that somehow he is a more senior minister even though that status does not exist.
Abdul Karim’s colleagues were quick to join in the debate. While their interventions were fun to watch, the real issue is not yet properly addressed. The public spat has become a distraction. From an issue of tax, Nazri turned it into a childish spat.
A more sensible comment came from Minister in the Prime Minister Department, Abdul Rahman Dahlan. He calmly asked Nazri to show a bit more respect to a fellow Barisan Nasional politician, and he also explained that it is necessary to diversify the government’s revenue base. This is the correct demeanor to explain the situation.
Nevertheless, Nazri does have some good points too. He was reported to have said “I don’t see why they are so upset about the tax. We made this decision several months ago in Parliament and the Cabinet. There were seven to eight Sarawakian ministers who didn’t say anything.” Indeed, what exactly did the Sarawakian MPs and Ministers do when this issue was debated in Cabinet and in Parliament? Why did they not speak up early enough?
Rahman Dahlan also said that the government could have done better at explaining this new tax. I agree with him on this point. This particular weakness has resulted in so many people questioning the new tax.
Firstly, it is called tourism tax when in reality it is not. This name is misleading. The tax will see every single person staying in a registered hotel being charged between RM2.50 and RM20 per room per night. This affects everyone who uses a hotel. Not just tourists.
You might be attending a funeral far away from home, or you might be a small business operator attending a trade fair in search for products for your trade, an officer who has to travel outstation for work purposes, or a family attending a wedding of a relative. You do not have to be a tourist at all. As long as you stay in a hotel or a rumah tumpangan, you must pay money to the government through this tax. If you already feel the pinch caused by the GST, then from July you will have to bear with this hotel tax too.
The cost implication is not just from the tax itself. Hotel operators will have to record the amount of tax you charged clients, and they must keep the money aside to pay the government. There is an additional cost of compliance on the hotel operators, which is logically going to be passed to consumers.
Consumers staying at the bigger and more expensive hotels may not be sensitive to changes in pricing. But consumers staying at the lower end hotels, especially the rumah tumpangan, could be more price-sensitive. Even a slight increase in price may push them away. If you total up the cost of compliance and the tax itself, the charge to consumers may become higher, increasing the risk of their customers opting for the unregistered and untaxed options like homestays and Airbnb instead. Therefore it is the smaller businesses who would face the real pressure from this new tax, especially if consumer behaviour shifts.
This is why as soon as this issue cropped up, and before most chambers of commerce and business associations responded, we at IDEAS immediately issued a statement to say that the government needs to rethink their decision on this matter. We are worried if this new tax on hotel stays will increase the cost of doing business and badly affect especially the small and medium sized operators.
This new tax also does not come at a good time because the tourism industry is just picking up and our inflation is now at an all-time high. The tax will certainly increase costs for hotel stays, even more so in the states that are already charging a similar tax. For example, Melaka introduced in 2012 the Heritage Tax on everyone staying in hotels in the state. Hence this new federal tax will add to the cost even further. It would be better if these duplications are removed first, and for the implementation to be planned more carefully.
As for the politicians who are bickering with each other, I would like to suggest that they stop their childish behaviour. It is ugly to watch people who claim to be a senior forgetting how seniors should behave.