Now, a new debate: Is the tourism tax constitutional?


KOTA KINABALU: Tourism and Culture Minister Nazri Aziz is barking up the wrong tree by questioning the silence of Sarawak BN MPs on the controversial tourism tax, says a Malaysia Agreement 1963 (MA63) activist.

In an interview with FMT, Zainnal Ajamain spoke about the question on the minds of many in the wake of the clash between Nazri and Sarawak Tourism, Arts, Culture, Youth and Sports Minister Abdul Karim Rahman Hamzah.

“Why didn’t Sarawak federal ministers – who are MPs – speak up against the Tourism Tax Bill 2017 in the Cabinet and why didn’t Sarawak BN MPs oppose the bill when it was tabled in the Dewan Rakyat?”

The answer, Zainnal said, was simple.

“An MP is not a representative of the state. They represent constituencies within the federation. Only the Sabah and Sarawak state legislative assemblies represent their respective states.”

Zainnal, a former senior research associate with Sabah-based think-tank, Institute for Development Studies Sabah (IDS), said the problem lay with Nazri who failed to understand the separation of powers between federal, state and local governments.

Separation of powers

Zainnal said Article 95 (d) of the Federal Constitution clearly states the exclusion of Sabah and Sarawak from Parliament’s power to pass uniform laws on land or local government.

In Sabah and Sarawak, he said, local government was a state matter and not a federal matter, which was why the two states had their own ministries in charge of local government.

He also said item 5(b) under the State List of the Ninth Schedule of the Federal Constitution clearly states that Boarding Houses and Lodging Houses were “services of local character”, meaning they came under the purview of local councils.

This had been clearly reinforced in the respective state laws of both states, Zainnal said.

In Sabah, he said, boarding houses and lodging houses come under the Sabah Local Government Ordinance 1961 Section 49(46)(i) while in Sarawak, it comes under the Protection of Public Health (Licensing of Hotels and Lodging Houses) Regulations, 2003.

“So that’s why Nazri’s argument doesn’t hold water, because regardless of whether Sabah and Sarawak MPs helped pass the bill, it wasn’t applicable to Sabah and Sarawak.”

He added that it was clearly unconstitutional as the federal government could not collect tax revenue which comes under the purview of the local government as provided in Article 95(d).

“How can a senior minister and former law minister take an oath to uphold the constitution but ignore this?” asked Zainnal.

He said if Putrajaya was allowed to collect the tourism tax in Sabah and Sarawak, it would set a precedent whereby the federal government could ignore rights belonging to Sabah and Sarawak under MA63.

Zainnal added that the final decision on whether tourism tax could be imposed in Sabah and Sarawak lay with the respective state governments.

Both the Sabah and Sarawak state governments have said they will discuss the imposition of the tax in their coming Cabinet meetings before making their stand on it.

Tourism tax not illegal, insists group

But MySabah, a non-political Sabah-based rights NGO, said there was nothing illegal about the tourism tax.

In a Daily Express report, the group’s legal adviser Tengku Fuad Ahmad said under the Ninth Schedule of the Federal Constitution, the power to make laws in respect of tourism and tax, with the exception of sales tax in Sabah and Sarawak, lay with Parliament.

“Additionally, Article 160 of the Federal Constitution defines ‘tax’ as an impost duty but doesn’t include a rate levied for local purposes or a fee for a service rendered.”

This he said, meant that Parliament could make laws to tax any product or service in Sabah regardless of whether the Sabah government already imposed levies, fees or taxes on the same product or services.

“So in the matter of hotel accommodation, earnings from such activities may lawfully be subject to state government levies, licensing fees or sales tax, in addition to federal taxes such as GST and the new tourism tax.”

He also said that Article 95B(3) of the Federal Constitution provided for a situation where goods and services might be subjected to both state and federal taxation, and that it even stated that federal sales tax collection took priority over the state’s sales tax.

Tengku Fuad also said if Sabah or Sarawak wished to dispute the legality of item 25A of the Federal List, then either the state should mount a challenge in the courts regarding its inclusion because, as it stood, tourism was “squarely a federal matter”.

He also said Sabah had conceded its taxation powers in exchange for among others, the Special Grant contained in Part Four of the Tenth Schedule of the Federal Constitution – Sabah’s right to 40% nett revenue derived from the state.

But Zainnal disputed this, pointing first to the fact that anything which wasn’t mentioned in MA63 – such as tourism – was residual power which belonged to the state.

“Usually residual power is given to the federal government, but in the case of Malaysia it is given to the states, specifically Sabah and Sarawak.”

He said there were so many items in Annex A of the Inter-Governmental Committee report which weren’t covered in MA63 and which became residual powers, and this included tourism.

“Therefore, before the federal government can make the claim that tourism (item 25A) is under the Federal List of the Ninth Schedule of the Federal Constitution they have to get the consent of the Sabah and Sarawak state assemblies, otherwise it is illegal.”

He also said Tengku Fuad could not only cite Article 95B(3) and “conveniently” forget about the constitutional safeguard provided for by Article 95(d) of the Federal Constitution.

Matter of principle

Penampang MP Darell Leiking said that Zainnal’s contention that the final decision on the implementation of the tourism tax lay with the Sabah government did hold water.
“In a literal sense, what Zainnal is saying is true. Sabah MPs don’t represent the state but their constituents.”

“But to me, Sabah MPs must carry out their duties in line with the spirit of the MA63. They mustn’t see themselves as Barisan MPs, but MPs who further carry the aspirations of the state government in line with the MA63.”

In this respect, Leiking said Putrajaya should have consulted the Sabah government on the tax, following which, the Sabah government should have relayed its stand to Sabah MPs.

“Perhaps the Sabah BN MPs felt they didn’t have any choice but to follow their whip in the Dewan Rakyat in voting for the Tourism Tax Bill 2017, hence their failure to speak against Nazri’s insistence that Sabah will not be exempted from the tax.

“This shows they have failed to protect the interests of Sabah and Sarawak. Mind you, non-attendance from voting doesn’t mean you are against the bill.”

Leiking said he had asked Nazri for Sabah to be exempted from the tax during the debate and that Sabah BN MPs should have insisted on the same.

“We need to move beyond party politics at a parliamentary level and the decision of the whip. The MPs must be independent and be free to decide on matters for themselves rather than follow their party’s directives, regardless of whether they are government or opposition MPs.”

But Leiking noted that Sabah and Sarawak, as equal partners of the federation were under-represented in Parliament, which would ultimately mean their opposition to the bill might not have made a difference because they didn’t have the numbers at all.

This he said, needed to be reviewed so that Sabah, Sarawak and Malaya had an equal number of seats so that the Federation of Malaysia could work as it was supposed to.

“While I may have debated to exempt the tourism tax for Sabah, I myself am now even more aware that several acts were done in exchange for Sabah’s rights to taxation by the insertion of the Special Grant under the Tenth Schedule of the Federal Constitution.

“Despite the constitutional obligation of returning to Sabah 40% nett tax of the taxes collected from Sabah, this hasn’t been fully implemented, as an unrealistic figure, today, had been fixed since 1969 – at RM26.7 million yearly.”

He said Sabah as an equal partner with constitutional guarantees had been “totally displaced” when it came to the share of its own wealth.

“So imposing the tourism tax in Sabah indicates yet another scheme to milk Sabah of its tourism business and to share the same centrally at the federal level.”

The tourism tax is fixed and charged on a per-room, per-night basis.

The tax is RM2.50 for non-rated hotels. RM5 for two-star, RM10 for three-star, RM15 for four-star and RM20 for five-star.

When winding up debate on the Tourism Tax Bill 2017 in the Dewan Rakyat on April 6, Nazri said the tax would be able to bring in an income of about RM654.62 million if there was a 60% occupancy rate at the more than 11 million hotel rooms in the country.

He had said the tax would be used to improve tourism facilities and promote Malaysia overseas.