MATTA urges Customs to review service tax amid worries tourist numbers will be affected

KUALA LUMPUR, March 2 — The Customs Department has been urged to review its Service Tax (Amendment) Regulations 2018 for tourism management services which came into effect yesterday, fearing it could hamper tourist numbers.

Malaysian Association of Tour and Travel Agents (MATTA) President Datuk Tan Kok Liang said the decision to include tourism management services as a taxable services is fundamentally flawed.

He added that it will have adverse implications on the industry especially when the treatment details and mechanism of reporting are unclear.

Tan said in a statement that under the service tax model introduced in September 2018, the tours and travel industry was not included in the scope of the service tax.

“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,” he said.

Tan added that on February 15, during a meeting with MATTA the department explained the treatment of reporting and paying the service tax is based on either total amount billing or itemised billing.

“We strongly disagree 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,” he said.

Tan added the quantum of tourism management services to be charged to tourists still remains uncertain.

“The Service Tax (Amendment) (No.3) Regulations 2018’s amendement Regulation 10 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.

“The tax will affect most travel agents in Malaysia who have committed to contracts before March 1, 2019, with their overseas agents for the year 2019 until 2020. Travel agents may face challenges in absorbing the additional costs,” he said.

Tan argued Malaysia is at risk of becoming a less attractive destination for inbound tourists, and also places an undue burden on domestic travellers due to the potential cascading tax effect.

“The definition of tourism management services by the department 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 0.46 per cent to 25.83 million last year from 25.95 million in 2017,” he said.

As a result of this Tan said there is a need to ensure tourism industry players maintain a competitive advantage in encouraging domestic travel and attracting more international visitors to the country.

He also appealed to MATTA members to stay calm as it seeks for clarification from the department, in light of their many enquiries and feedback about the implementation of the service tax.

“We support the government tax model aimed at stabilising the country’s financial status. However, the service tax treatment must be clear in taking into consideration the current business model of tour and travel operators.

“We urge the department to review the imposition of service tax to tourism management services, and to revert to the earlier decision where the tours and travel industry were not subject to the SST,” Tan said, referring to the Sales and Services Tax which replaced the GST.