Tough terrain for Malaysia's tourism industry

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This article first appeared as 'Tough terrain for tourism' in the May 27, 209, 2019 issue of The Edge Malaysia

In 2016, an Indian national’s 8 days/7 nights holiday to Malaysia with his wife, parents and a child through klia2 would have cost him RM160 in passenger service charge (PSC).

Today, the same holiday would cost the five-member family from India RM505 in PSC and Tourism Tax. And from Sept 1, the various levies imposed could set them back by RM755 — equivalent to the cost of a flight ticket from India.

This is the result of a slew of tourism-related charges and levies imposed since September 2017 and a departure levy scheduled to commence in September this year (see Table 1).

Viewed in isolation, the various taxes and fees do not look hefty and seem good for the country. But in toto, they could be the deal-breaker for where the tourist decides to go.

All of this begs the question as to whether Malaysia will be able to hit its lowered target of 30 million tourists and RM100 billion in receipts next year. This year’s target is 28.1 million tourists and RM92.2 billion in receipts after achieving 25.83 million tourists and RM84.1 billion in receipts last year.

Will the negative publicity of being put on the US’ watch list, news of the public caning of women and the lack of lead time in promoting VM2020 to the world hamper our goal?

Tourism is the third largest contributor to Malaysia’s foreign exchange receipts after manufacturing and commodities. Inbound tourism’s contribution to Malaysia’s gross domestic product was 5.9% last year and 6.1% in 2017.

 

Taxing the tourist

On Sept 1, 2017, the government started collecting a flat RM10 per room per night in tourism tax from foreigners, whether they stayed at a luxury or budget hotel. On Jan 1 last year, the PSC at klia2 was increased to RM73 from RM50 for travel outside Asean, in order to equalise it with that of other airports in the country. On March 1 this year, Malaysia Airports Holdings Bhd started imposing RM8 on excursion buses and RM4 on tour vans for pick-up and drop-off at klia2.

In his Budget 2019 speech, Finance Minister Lim Guan Eng said a departure levy would be introduced to encourage domestic tourism. The tax, initially targeted to commence on June 1, has reportedly been postponed to Sept 1.

While the details and mechanism of the new tax structure are yet to be released, the revised tax is premised on having the rich subsidise the poor — where first and business-class passengers will pay more than economy-class passengers.

A recent article also suggests that the departure tax could replace the tourism tax. Note that the departure tax will be levied on anyone leaving the country while the current tourism tax is only imposed on foreign tourists.

It is not known how the departure levy will replace the current tourism tax as the latter was imposed under the Tourism Tax Act 2017 while the Departure Levy Bill was passed in Dewan Rakyat in April this year.

It has been widely reported that the departure levy will be imposed on departure by air. But Clause 9(1)(a) of the bill states that anyone leaving Malaysia “by an operator” shall be subject to a departure levy. And “an operator” is any person who operates any vehicle to carry any person leaving Malaysia. Those travelling on private jets are also caught.

This means that the tax can be imposed on tourists crossing the border via train, cruise ships or chartered vehicles. Malaysia has a total of 97 points of entry and exit by way of air, land, sea and rail, of which only 21 are entry points by air. Last year, 34.7% of total foreign arrivals at Malaysia were by air.

The International Air Transport Association (IATA), a grouping of 290 airlines, including Malaysia Airlines and Malindo Air, estimates that the departure levy would reduce the number of international air passengers departing from Malaysia by 835,000 annually and erode Malaysia’s competitiveness as a tourist destination in the region to the detriment of the economy.

Should we be concerned that there will be yet another tax imposed on the tourists? Tourism Malaysia director-general Datuk Musa Yusof does not appear worried about the upcoming departure levy. “I believe Malaysia has attractive tourism products and offerings that strongly appeal to a wide market. It would be unlikely for tourists to discount Malaysia solely due to the imposition of a departure tax, which, in this case, is minimal,” he tells The Edge in an email interview.

Maybank Kim Eng senior economist Dr Chua Hak Bin says most countries similarly impose a departure tax to raise revenue for funding an airport’s upgrading and expansion. He reckons that the departure tax should not be a huge burden on travellers as the rate is below that of most other airports in the region (see Table 2).

But Professor Datuk Dr Victor Wee of Taylor’s University, an economist who spent 10 years with the Tourism Ministry and Tourism Malaysia, is concerned. “The demand for international tourists is fairly elastic and price-sensitive in the short run. Tourists from Asean countries, India and the Far East could see other destinations as a substitute for Malaysia if the cost of travel to the country spikes because of the levy, especially for those travelling with family members.

“The collection of departure levy should be considered against the potential loss of tourist spending when the tourist chooses to go to other destinations,” he says, highlighting that tourist arrivals had already reached a plateau and been hovering at around 25 million for the past eight years, with the exception of VM2014 when arrivals rose to 27.4 million.

Wee also questions if the departure levy will later be channelled into the tourism industry. He says the focus should be on having the right incentives to make Malaysia an attractive proposition in 2020. “Having to pay a departure levy just before the start of VM2020 is certainly not the right ingredient for a tourism campaign. It would erode the country’s attractiveness as a destination during the year-long tourism campaign, which would cost millions of ringgit to run.”

 

How to be a tourist magnet

“The relevant agencies in government and the industry should sit down together and strategise how to address the problem [of luring more tourists]. We offer many products but with no clear overall theme,” Wee says.

“We need to move out of the comfort mode that made us successful in the past. Our admirers have adopted our strategies and we need to move on to innovate. We need to roll up our sleeves, reinvent ourselves and try to get value from the budget that has been given to us.”

He opines that apart from Malay, Chinese, Indian and Sabah and Sarawak dance performances, the country has not built on the “Malaysia Truly Asia” slogan. “Thailand’s theme was ‘Thainess’ and it came out with 10 to 12 areas demonstrating its Thainess,” Wee points out.

So even though Malaysia has a highly successful slogan, Thailand and Singapore have raced ahead with more flights as they always have new products to attract tourists. Unsurprisingly, regional competition has intensified.

“Malaysia will have to expand and develop its tourist offerings to grow the sector, especially in the face of intensifying competition and new airport gateways across Asia as travellers are spoilt for choice,” says Maybank Kim Eng’s Chua, citing the example of Singapore’s latest lifestyle mall — The Jewel — at Changi Airport that has grabbed the world’s attention.

The Jewel, he adds, will strengthen Changi Airport’s air hub status and provide a more comfortable stop for transit passengers, especially those with long intervals between connecting flights.

Another example is Singapore’s S$9 billion investment in expanding two integrated resorts — Marina Bay Sands and Resorts World — in the city state.

“Vietnam, meanwhile, debuts its Formula One Grand Prix race in Hanoi next year,” Chua remarks.

He sees a lot of potential in developing retirement tourism, in which Malaysia is already ahead of Thailand, ranked fifth in the annual Global Retirement Index. He also suggests expanding and improving the country’s airports as Penang, Langkawi, Kuching and Kota Baru are fully utilised.

“Vietnam is ramping up the number of its airports to 23 by 2020 and 28 by 2030 from the current 21. And half the airports will serve international flights,” he points out.

Meanwhile, Wee continues to see potential in the meetings, incentives, conferences and exhibitions market as a tool to increase tourism expenditure. The Malaysia Convention and Exhibition Bureau, he points out, was performing well until its “promotional budget was slashed to the bone”.

A Cabinet committee on tourism was established in 2005 when Wee was the secretary-general of the Ministry of Tourism. “This was a high-level committee to get alignment from all the ministries whose actions have an impact or bearing on the tourism industry. Even the Immigration Department had to adjust its policies, regulations and practices to accommodate tourism because it was clear how tourism contributed to the national economy and wealth,” he says.

With tourist arrivals and receipts in 2020 targeted to grow 16.15% and 18.9% respectively from last year, achieving the ministry’s goal may be a tall order unless drastic steps are taken, including removing the visa fee for major tourist markets and deferment in the departure levy.

 

Not VM2020-ready yet

Malaysia’s visibility as a tourist destination has seen a marked decline abroad. Not surprisingly, this was the result of a cut in Tourism Malaysia’s advertising and promotion budget. “For the past 10 years, we’ve experienced close to a 70% budget cut, which hampered our A&P activities in most markets. The lack of visibility has affected tourist arrivals at Malaysia,” says Tourism Malaysia director-general Datuk Musa Yusof.

Malaysia’s redesigned VM2020 logo is also not ready. A competition was held in March to redesign a new logo after the earlier logo came under a lot of flak for its amateurish design. According to Musa, the outcome of the competition will be announced next month.

With just about seven months to VM2020, some industry players are disgruntled that there is a lack of engagement between them and the Ministry of Tourism, Arts and Culture (MOTAC) and its marketing arm Tourism Malaysia.

“We have less than seven months to go to VM2020 and we are clueless on the theme, the target market, the advertising and promotional plans and attractions to focus on. In August last year, MAHO (the Malaysian Association of Hotel Owners) urged MOTAC and Tourism Malaysia to urgently engage with industry players for VM2020 for networking and consolidated action. We reminded them again this year,” MAHO executive director Shaharuddin M Saaid tells The Edge.

Is the VMY logo that important? When asked how VMY campaigns were organised in the past, an industry veteran contacted by The Edge says, “You need to provide that logo well ahead of time.” Thailand has its logo a year ahead of its Visit Thailand Year, he adds. “Tourists have to be reminded repeatedly so that they can decide way ahead of time, especially those from the long haul markets.”

Datuk Abdullah Jonid, who was the director-general of Tourism Malaysia between 1998 and 2004, when the now famous slogan “Malaysia Truly Asia” was coined, says, “We need to give the new team a chance.” He points out that the slogan is being used until today because it is still relevant and paints an accurate picture of the country. “Short of someone coming up with a more dynamic slogan, they can stay on the safe side and continue to use the old one,” he quips.

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