New departure levy could cost tourism RM1.8 billion, says think tank

PETALING JAYA: A think tank has warned that the implementation of a departure levy on all passengers leaving from Malaysian airports may impact tourism with a knock-on effect on the wider economy as well.

The Institute for Democracy and Economic Affairs (IDEAS) said the new levy of RM20 for those flying to Asean countries and RM40 for travel to all other international destinations would affect Malaysia’s “competitive advantage”.

It said the levy would widen the competitiveness gap between Malaysia and Asean countries, given that the new rates are some 7% to 9% more than those of Thailand, Singapore and Indonesia collectively.

“This pressures the Malaysian aviation market and possibly limits the growth of tourism, as other nearby countries are relatively cheaper to visit,” IDEAS said in a report released today.

“When the new departure levy is implemented, on our calculations, ticket prices from Malaysia are raised by RM20, and the ‘total tax’ becomes RM56.

“With this departure levy in place, the price difference significantly increases to a 7% to 9% difference of tax on flight tickets to nearby destinations compared to other Asean countries.

“When visiting non-Asean destinations, the part of the tax paid for a full-service flight ticket after the implementation of the departure levy will increase by approximately 3%,” IDEAS economists Adli Amirullah and Irene van Eldik said.

During the tabling of Budget 2019, Putrajaya had proposed a departure levy on all air travellers leaving the country from June 1, 2019, to encourage the development of domestic tourism.

The departure tax of RM20 and RM40 would be on top of the RM73 passenger service charge (PSC) already imposed by airports.

Experts have since cautioned that the departure levy will affect tourism arrivals as it will lead to a drop in passengers. They also poured cold water on the plan as a bid to spur local tourism, saying this would not be significantly impacted.

IDEAS said the new levy would also reduce demand for tourism based on the price sensitivity calculation by the International Air Transport Association, which would see tourists to Malaysia reduced by over 500,000 by 2020.

This is in addition to the slower tourism growth predicted by Putrajaya.

“With arrival growth numbers currently turning negative and future expected arrival numbers being adjusted downward, the loss of tourism in Malaysia might be further magnified by this levy, as passengers choose to travel to other holiday destinations with more competitive pricing.

“While the government aims to increase revenue, it might be contradicting its own policy in the long run, as it loses out on reduced tax income from the expenses of tourists now travelling elsewhere, creating a deadweight loss.”

Based on the average expenditure by tourists, this will result in close to RM1.8 billion less being spent in the tourism industry.

This is significantly less than the estimated RM400 million to be raised through the levy by 2020, IDEAS said.

“With the prospect of tourism in Malaysia to reach 30 million arrivals by 2020 and Tourism Malaysia estimating that the share of Asean tourism is 75%, a total of 565,503 Asean tourists will be missed out on when implementing the levy.

“As a result, there will additionally be a substantial loss of income from tourism, as tourists on average spend RM3,169 per person in Malaysia.

“This will mean an absence of RM1,792,079,007 in tourism spending due to the departure levy, not only affecting tourist-related industries but additionally increasing the missed tax income as tourists would have paid tax over their expenses.”

IDEAS noted that the air transport sector supports wider economic development, including promoting trade and attracting investment, which could be undermined by the increased cost of air transport as a result of the levy.

“The effect on Malaysian citizens – both directly and indirectly – is not prosperous either, as they will possibly miss out on jobs, income and connectivity,” IDEAS added.

“The departure levy also poses a threat to airlines as increased ticket prices might lead passengers to choose LCCs (low-cost carriers) over full-service carriers more often, as ticket prices become relatively more expensive.

“The posed threat to Malaysia as a possible global hub is stringent, with chances being that when the 7%-9% higher tax on air tickets is imposed, both tourists and airlines might choose to move to more competitive neighbours.”

IDEAS added however that its report showed only preliminary estimates and recommended that a thorough impact assessment be carried out.

Transport Minister Loke Siew Fook has said that the government is studying the best mechanism to collect the departure levy before it is implemented on all outbound air travellers.

He also said the government had not finalised whether the levy would be added on to the PSC or collected by the Customs or Immigration Department.