Tourism tax: What happens when more switch to Airbnb?


PETALING JAYA: As the debate over the controversial tourism tax continues, a think-tank says Putrajaya’s model for the tax may not be sustainable.

It warns that it could lead to further complications in the near future due to changing trends in the tourism and hospitality industry.

Speaking to FMT, the Institute for Democracy and Economic Affairs (Ideas) said the tourism tax – which is to be implemented from July 1 – places an unfair burden of tax collection on accommodation providers such as hotels.

“With occupancy rates at registered hotels generally around 40%, an additional charge might cause tourists to move instead towards unregistered accommodation providers such as illegal hotels and Airbnb,” says Ideas external relations manager Azrul Mohd Khalib.

The issue is one which hotel industry players are very concerned about, especially since accommodation providers with fewer than 10 rooms are exempt from the tax.

Previously, industry representatives — namely the Malaysian Association of Hotels (MAH), Malaysian Association of Hotel Owners (Maho) and Malaysia Budget Hotel Association (MyBHA) —questioned how illegal hotels and Airbnb could be brought into the tourism tax system as they weren’t registered with the tourism and culture ministry.

They also lamented the uneven playing field as they already have to comply with a host of existing regulations.

These include paying for business fees, licences and commercial rates for utilities, while operators of illegal hotels and Airbnb are not subjected to these.

Understanding Airbnb’s growing popularity

Airbnb, Azrul said, has been a game changer in the global hospitality and tourism industry. This is also true for Malaysia.

“It has made previously dormant private assets productive, created new and diverse options for travellers and given a competitive shock to the industry.

“Home-sharing offers an economic lifeline for many, especially middle-class families looking to make additional income.”

For those looking for accommodation, Azrul said Airbnb also offered them a cheaper and more flexible alternative to conventional hotels.

This, he added, made the Airbnb model understandably more attractive to both Airbnb providers and users.

This trend could be seen in the growth of Airbnb, which has gone from a small start-up in 2008 to a company worth some US$30 billion (RM127 billion). It has a presence in 191 countries around the world.

In fact, in a recent joint memorandum sent by MAH, Maho and MyBHA to the government on the tourism tax, the associations pointed out that there are only 3,126 accommodation providers registered with the ministry, which are automatically included in the scope of the tax.

On the other hand, they say, publicly available figures show there are 6,452 unregistered accommodation providers on – a popular travel fare aggregator website – and 11,698 accommodation providers on Airbnb as of April this year.

Airbnb rentals in Malaysia can start from as low as RM44 per room per night to just over RM1,000 for an entire house which can accommodate 10 people or so, with some including facilities like private swimming pools.

What happens when more opt for Airbnb instead of hotels?

“If there is a dramatic swing towards this sector and the government decides to target room-sharing or home-sharing hosts for collection and payment of the tourism tax, it will cause new tax issues and complications,” says Azrul.

“Should they register as businesses? Will they be considered to be small businesses and be exempt from this tax?

“Why should only homestays be exempt?” he said, in listing some of the questions which may arise.

He said while additional taxes like the tourism tax could boost the government’s revenue, the burden placed on the hospitality industry could lead to increased hardship for industry players in an already challenging climate.

Similarly, should Airbnb be targeted for the tourism tax in the future, it could also make it difficult for people to participate in the accommodation-sharing activity, depriving individuals and families of much-needed revenue.

Learning from Malaysia’s Uber, Grab experience

But the way forward, Azrul said, wasn’t in doing away with the tourism tax, as most developed countries and major cities have tourism taxes.

Rather, he said Putrajaya had to address the issues stemming from trends in the hospitality industry first before thinking about the ringgit and sen derived from the tourism tax.

Learning from Malaysia’s Uber and Grab experience, Azrul said the government shouldn’t wait till it was forced to regulate Airbnb.

When ride-sharing services, Uber and Grab, first emerged in Malaysia in 2014, there were calls from taxi operators for the government to act against them as they were “illegal”, despite their popularity.

Eventually, two years later – after numerous protests from taxi drivers and pleas from consumer associations – the cabinet gave the Land Public Transport Commission (SPAD) the green light to regulate ride-sharing services.

Azrul said the government should already start talking about regulating Airbnb with the numerous legal experts, stakeholders and industry players.

“We have to start this process now because we will come to a point where it has to be addressed.

“It needs to be addressed before we roll out this tourism tax on hotels.

“Otherwise, it will be an uneven playing field which could prove detrimental to the hotel industry.”

Azrul said only when Airbnb was regulated, and the operators were registered as business owners or operators, could taxation on Airbnb be done in a systematic manner.

More cities around the world are regulating short term-property rentals like Airbnb.

In the past couple of months, Kansas City in Missouri, US, and Toronto in Canada had proposed regulations for Airbnb, including setting permit fees.

In addition, Airbnb and its operators must also comply with regulations, such as collecting occupancy tax – a tax similar to the tourism tax – when applicable.

In some areas like Amsterdam in the Netherlands and San Francisco in the United States, Airbnb will automatically collect the tax from guests and channel them to the local tax authority on behalf of the Airbnb operators.

In Australia, those renting out part of or their entire property on sharing websites or apps like Airbnb are required to keep records of all earned income.

They must declare it in their income tax returns and pay income tax on amounts received from the rentals.

As for the hotel industry, Azrul said the latest developments in the sector, specifically the emergence of Airbnb, must be seen as a form of competition for the industry.

This requires innovation, changes in hospitality practices and having a better understanding of the needs of the average tourist who has limited purchasing power in the challenging economic situation.

“Airbnb has responded to these challenges by fulfilling those needs. It’s time that hotels did the same.”

Use revenue from tax on tourism

Azrul said in implementing the tourism tax, the government needs to give its reassurance that the revenue collected will be channelled into building and improving the local tourism infrastructure.

This, he said, needs to be a transparent process so the public and industry players could see how much revenue was collected and how it is spent.

“The government must also do a better job at communicating to the Malaysian public and international media on the rationale and justification for the tourism tax.”

Recently, Sarawak DAP chairman Chong Chieng Jen rubbished the statement made by Tourism and Culture Minister Nazri Aziz that revenue from the tourism tax will be used for promoting Malaysia overseas.

He said revenue from the tax would be channelled into Putrajaya’s consolidated fund.

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 will be used to improve tourism facilities and promote Malaysia overseas.