KOTA KINABALU: The Malaysian Association of Tour and Travel Agents (MATTA) Sabah has expressed concern over the impact of the proposed Goods and Service Tax (GST) in the country.
Its chairman, KL Tan, said the tourism industry will be badly affected if GST is implemented without consulting stakeholders in the tourism sector.
GST is a type of broad-based consumption tax that covers all sectors of the economy and it is imposed on a wide range of local and imported goods and services.
The Malaysian government first announced that it intended to introduce GST in 2004. However, it was postponed thereafter due to mixed responses from the public and businesses.
On 16 December 2009, the government introduced the GST Bill 2009 for its first reading in Parliament and had proposed to commence in 2011. However, it was also deferred and expected to commence in the not too distant future.
Tan said it is shocking for Minister in the Prime Minister’s Department Datuk Idris Jala to guarantee a RM27 billion income if GST is implemented.
“It looks like the all Malaysians, rich and poor, will have to contribute this additional revenue to the government.” he said.
Idris said that the GST should be comparable to Singapore at 7% but Tan pointed out that Singapore is well developed with lower tax rates. Singapore’s corporate tax rate is 8.5% on profits for up to SGD300,000 and 17% on corporate profits above SGD300,000. The Malaysian tax rate is 20% for profits up to RM500,000 and 25% for profits above RM500,000. The Singapore individual tax rates is also lower compared to Malaysia. GST implementation may be considered only if Malaysian corporate and individual tax rates are significantly reduced.
However, Tan agreed that the move to introduce GST is expected to enhance the efficiency and effectiveness of the existing tax system, particularly in curbing tax erosion and leakages through transfer pricing and other means.
Perhaps the introductory GST rate should be about 4% on non-essential services and products and increasing slowly over the years to avoid inflation, he suggested.
Tan said that GST will basically make Malaysia more expensive as a destination compared to Thailand, Indonesia and the emerging destinations in Indo-China. It would impact Malaysia’s relative competiveness with other international destinations.
“GST may not deter tourists to come to Malaysia but because of the higher cost of living, tourism receipts may drop as tourists will spend less.
“GST may influence how much tourists spend while here. There is a multiplier effect and this will affect the economy. If GST is implemented in 2014, it will not favor the Ministry of Tourism and Culture to bring in more tourism receipts for the Visit Malaysia Year (VMY) 2014.
“GST implementation will have considerable negative effects and ruin the highly anticipated campaign,” he said.
Tan is also of the opinion that the VMY2014 target of 28 million foreign tourists arrivals will be stifled and that the realisation of Malaysia Tourism Transformation Plan 2020 to achieve 36 million tourist arrival with RM168 billion receipts will be an uphill task,” he said.
Tan hoped that GST would be deferred as the mechanism should be probably explained to the tourism sector and the travel agents need to inform their counterparts at least a year in advance of the GST.
“Some of us have signed contracts with our overseas counterparts for the years 2014/2015. Imagine we have to absorb the 7% GST of tour packages which is very substantial. Some standard tour package would be some RM1,000-to RM3,000 per pax and 7% thereon will put us out of business. A transitional provision of two years should be allowed. Tourism operators working in the international market place have set up brochures and their contracts up to two years in advance. They will have to decide who to absorb the additional costs,” he said.
Tan urged the Ministry of Finance (MOF) to engage the stakeholders to discuss the implementation of GST because of its far-reaching implications to the tourism industry which has emerged as an important contributor to Malaysia’s economic growth.
The concerns are GST treatments on services provided in the travel industry like domestic air travel, ground transportation, inbound tour packages, booking fees and commissions should be classified as “zero-rated supplies” or “standard-rated supplies”.
Tan pointed out 65 per cent of tourists arrivals to Sabah are domestic and any GST tax treatment works against tourism if these services are “standard-rated supplies”. Of main concern is the domestic air travel between West Malaysia and East Malaysia and air travel within Sabah and Sarawak. These services hopefully be classified as essential services and be zero-rated.
“GST will affect the whole travel industry, including domestic tourism as any negative impact on the disposable income will affect us negatively as holiday is considered a discretionary expense and is normally the first to be deferred or cancelled,” he said.