In Malaysia, the interim period between the zero-rating of Goods & Services Tax and the implementation of a new Sales & Service Tax is presenting tremendous lures for travellers seeking a good deal. But the critical test for Malaysia as a destination choice begins after the three months.
Travel agencies in Malaysia are swiftly capitalising on the zero-rated Goods & Services Tax (GST) to entice price-sensitive clients, with the possibility of being subject to a new Sales & Services Tax (SST) in September still looming.
When the Pakatan coalition came into power after the 14th Malaysia general election on May 9, one of the first things it did was to reduce the unpopular GST to zero from June 1, effectively abolishing it.
SST, which had been in place for 40 years until it was replaced by GST in April 2015, will see a return on September 1, 2018. In the past, SST was never imposed on the tourism sector, though it may be implemented differently this time around.
In the interim period however, there is no longer GST charges on room rates and hotel dining, domestic airfares, entrance fee tickets, restaurant bills and transportation costs. To the traveller, Malaysia is at its most attractive in years when it comes to rates.
Field day for inbound, domestic agents
“This window is exceptional as prices of hotels and entertainment are at bargain rates,” said Manfred Kurz, managing director of Diethelm Travel Malaysia, for which Europe is a key source market.
He added that the savings from not having to pay GST is “substantial” – RM300 (US$74) for a ground package worth RM5,000. “We don’t expect a tsunami of European tourists, but we anticipate at least 10 per cent increase because of the lower prices.
“On normal occasions, we get advance bookings six to eight weeks ahead… But (in this case) the government announced its intention to remove GST in mid-May and we had only two weeks to inform our partners overseas. We see the booking window narrowing to one or two weeks.”
The three-month GST-free period also overlaps with other seasonal conditions to make this a prime time for attracting price-sensitive tourists. The June to August period coincides with the nationwide mid-year sales season, with advertised discounts of up to 70 to 80 per cent.
As well, the value of the ringgit has depreciated against other major currencies since the general election in early May. It continued to be on a downward trend in early June, trading between RM3.96 and RM3.99 against the US dollar.
For Middle Eastern and European markets, now is also the peak summer travel period. Saini Vermeulen, executive director of Within Earth Holidays, said the agency informed partners in the Middle East of the zero-rated GST and encouraged them to upsell higher-end hotels.
Confirmed groups benefit as the six per cent savings could be used to make extra purchases, he shared. “We anticipate a 10 to 20 per cent increase from Middle East arrivals during this three-month period compared to last year. We have seen a 20 per cent increase in advance bookings.”
Further capitalising on low prices to attract retail-hungry tourists, the agency has worked with retailers and F&B outlets on discount vouchers specially for Middle Eastern clients.
“We also provide guests with local SIM cards and a customer service number to call should those with poor proficiency in English require assistance (communicating) while shopping.”
Meanwhile, inbound travel operators are also observing an uptick in demand from neighbouring markets.
Raaj Navaratnaa, general manager of the Johor-based New Asia Holiday Tours & Travel, has received increased bookings for family travel from Singapore and Indonesia for June, while forward bookings for July are looking good.
“The main attraction is the mid-year sales. While a 3D2N package is the norm, we are seeing increased bookings for 4D3N packages from both markets. The main destinations are Johor, Melaka, Kuala Lumpur and Penang. With domestic flights now cheaper, we are also seeing increased interest from Singaporeans to holiday in Kota Kinabalu and Kuching.”
Higher tour prices ahead?
The Ministry of Finance said in a statement that the shortfall from scrapping GST would be cushioned by revenue and expenditure measures, but it remains to be seen if levying SST on additional sectors – including travel – is one of them.
The Finance Ministry also noted that oil prices have been higher than the US$52 per barrel estimated for Budget 2018, providing a fiscal buffer for the immediate future.
Ong Kian Ming, a special officer to the finance minister, told Reuters that with oil prices on the up, Malaysia may collect an additional eight to nine billion ringgit from Petroliam Nasional (Petronas) this year.
K Thangavelu, managing director at Grandlotus Travel Agencies, believes that while Malaysia stands to gain from the higher oil prices as an oil-producing country, its tourism sector may see the effects of higher airfares by early next year.
Thangavelu remarked that the gains from zero-rated GST may not persist due to rising airfares. He said: “For the past three to four years, the airline industry was enjoying fuel prices between US$50 to US$60 per barrel. LCCs may not be able to continue with low pricing for long.”
Arokia Das, senior manager, Luxury Tours Malaysia, disagreed. “The volume of incoming tourists will depend on the quantum increase in airfares. Airlines will weigh this against potential loss of business. I doubt airfares will increase drastically. And with more than 75 per cent of tourists to Malaysia being short- and medium-haul travellers, arrivals will not be much affected,” he argued.
“The zero-rating of GST has made us more competitive regionally. If there is a loss of revenue in the short term, the government will fix this.”
Beyond price-led growth
If SST kicks in for the travel trade, Sandro Nania, sales manager at Happy Trails! Asia, said: “Total package costs may see an increase (from the no GST period) and you won’t be attracting price-conscious tourists… They will go to more affordable destinations in the region.”
Highlighting the importance of enhancing the destination’s appeal beyond price competitiveness, Nania also urged for Malaysia to target upper middle and high income tourists who are less price sensitive.
“To attract more European tourists, more awareness about the destination is needed…. The national parks and conservation efforts in West Malaysia needs more promotions. European tourists will not mind paying more for great experiences. This is how we should compete with neighbouring countries.”