Kuala Lumpur: The Malaysian Association of Tour and Travel Agents (MATTA) urged the Government to review the Service Tax (Amendment) Regulations 2018 issued by the Royal Malaysian Customs Department on tourism management services that was imposed from March 1 (yesterday).
“The decision taken by Customs to include tourism management services as one of the taxable services on Jan 1 is fundamentally flawed and will create serious adverse implications to the tourism industry, especially when the treatment details and mechanism of reporting are unclear,” its President Datuk Tan Kok Liang said, Friday.
Under the service tax model introduced in September 2018, he said the tours and travel industry was not included in the scope.
“When the previous Goods and Services Tax (GST) regime was introduced, the industry was given ample time to make preparations whereas this sudden announcement has left the industry floundering and confused,” Tan said.
In a meeting with MATTA on Feb 15, Customs officers explained that the treatment of reporting and paying the service tax is based on either total amount billing or itemised billing.
Tan said the association strongly disagrees with either approach as the total amount billing will have elements of cascading taxation in the supply chain of services while itemised billing is unfair to travel agents as it requires businesses to expose their margins.
As it stands, Tan queried: “What is the quantum of tourism management services to be charged to tourists?
As stated in the Service Tax (Amendment) (No.3) Regulations 2018, Tan said the amendment to Regulation 10 reads as ‘Where a registered person provides any taxable service to his customer who is a registered person providing the same taxable service as provided by him, and such customer is entitled for exemption of service tax under Section 34 of the Act in relation to the taxable service provided by the registered person.
He said this appears to be a somewhat mitigating factor between Sales and Service Tax (SST) registered travel agents but still does not provide any viable solution to the industry’s predicament.
He reiterated that the service tax will affect most travel agents in Malaysia that has committed contracts before March 1 with their overseas agents for the year 2019 until 2020.
“Travel agents may face challenges in absorbing the additional costs,” he added.
Furthermore, Tan said the definition of tourism management services by Customs is vague.
“What if the revenue of the travel agent is basically commission-based?”
The 2018 tourist arrivals had missed the revised targets set by the Ministry of Tourism, Arts and Culture, which were at 26.4 million tourists.
“Tourist arrivals fell 0.46pc to 25.83 million last year from 25.95 million in 2017, hence we need to ensure our tourism industry players maintain a competitive advantage in encouraging domestic travel and attracting more international visitors to Malaysia,” he said.
Tan also express fear that Malaysia will become less attractive to inbound tourists and place an undue burden on domestic travellers due to the potential cascading tax effect.
“MATTA has received many enquiries and feedback from members on the implementation of the service tax. We ask our members to stay calm as we are urgently seeking for a clarification from Customs,” he added.
Towards this end, Tan assured MATTA would continue to support the Government’s tax model aimed at stabilising the financial status of the country.
However, he said the service tax treatment must be clear in taking into consideration the current business model of tour and travel operators.
“We urge Customs to review the imposition of service tax on tourism management services; to revert to the earlier decision where the tours and travel industry were not subject to SST”, Tan stressed.