Tourism Tax Bill slightly negative on industry, says HLIB Research

PETALING JAYA: The Tourism Tax Bill 2017, passed by Parliament last week, is slightly negative to the tourism industry in general (despite a rise in visitor arrivals) as well as to the gaming and real estate investment trust (REIT) sectors that have hotel operations, according to HLIB Research.
The Bill allows for a tax to be imposed on tourists for accommodation.
According to the last briefing by authorities in January, the rates would differ according to a hotel’s star rating and it applies to all hotel guests, be it foreigners or locals. It is understood that the tax for non-rated hotels will be RM2.50, while tax for 2-star, 3-star, 4-star and 5-star hotels were set at RM5, RM10, RM15 and RM20, respectively.
The research house expects the bill to further impact major hoteliers who are currently facing headwinds from rising cost structure and shift of demand to cheaper alternative lodging options such as boutique hotels and Airbnb.
Implementation could be as soon as May, the research firm said.
While the actual impact to the cost structure is still to be determined, it believes industry players will likely pass through the tourism tax to consumers. Despite this, margins will still be affected as it can expect higher administrative cost associated with the tax, such as staff and credit card charges.
“In the interim, we also believe that industry players may have to absorb the potential tax levy for existing pre-booked hotel reservations prior to the implementation date for this new ruling, in which the service will only be rendered post-implementation.
For gaming, it is of view that Genting Malaysia Bhd might be hit with the extra levy cost given that 72% of their hotels are occupied by their non-paying members.
“Assuming 11,000 hotel rooms in their inventory with an average occupancy rate of 90% and 72% members, the potential extra cost based on RM15 per room per night could amount to RM40 million per year. However, we do not expect the occupancy rate for GenM to be affected as their hotels are catered for the captive market,” HLIB said.
For REIT, it believes the impact is minimal as contribution from hotel assets to total revenue is slightly above 10%. The potential impact to FY17 pre-tax profit for KLCC REIT and Sunway REIT are only 0.2% and 0.3% for every 1% drop in average occupancy rate in their hotel assets.