Hotel stays in Malaysia are set to get more expensive. Here's how the tax increase will affect your local holiday options

By VINCENT TAN

THE ringgit's declining value, combined with the continued reopening of the world economy post-COVID-19, saw Malaysia record a massive number of tourist arrivals in 2023. As such, the government's target of 27.3 million foreign tourist arrivals this year is expected to be easily met.

But what about local tourists? Unfortunately, the recent two percentage point increase in Malaysia's Sales and Service Tax (SST), from 6 per cent to 8 per cent, is likely to put a dampener on local tourism dollars. And that is before taking into account a potential 10 to 30 per cent hike in hotel room rates.

So, should Malaysians put their planned domestic vacations on hold? And how will that impact local tourism as a whole?

A cascading effect

According to Malaysian Association of Hotels (MAH) president Christina Toh, the two percentage point increase in SST might seem minimal to some. However, it is likely to have a cascading effect on hotels and the entire hospitality industry.

"Beyond the direct tax itself, prices of goods and services, which are essential to hotels, will also increase, significantly contributing to higher operating costs, like cleaning agents, transportation, utility and maintenance," Toh said.

But, she claimed, hotels have long been struggling due to the weakened ringgit and aren't seeking to profit excessively. It is simply that rates will have to be adjusted so establishments can stay in business.

"Actually, hotels have been increasing their room rates all across the world, especially since we started reopening borders," Toh said.

"Also, the 10 per cent to 30 per cent increase in room prices, especially in the Klang Valley, had been taking place even before the SST increase due to international conflicts and resulting economic shocks, such as the recent oil shortage.

"Even something as simple as a ban on onion or wheat exports can increase our costs, and those get passed on to guests."

Staying hopeful

As for whether the Malaysian public will be okay with the price adjustments, Toh said that MAH and hoteliers can only hope that domestic tourists are understanding of the hotels’ situation.

"In terms of prices within Southeast Asia, Malaysia is among the countries with the lowest hotel room rates on the market. So, hotels in our country are, and will remain affordable for locals," she added.

It is interesting to note, nevertheless, that some establishments have refrained from raising prices.

For example, Legoland Malaysia's divisional director CS Lim said the Johor theme park hotel has been able to manage costs thus far. As such, save for implementing the new SST rate, he saw no need to increase prices now.

For the record, payroll (staff) and utilities make up the bulk of operating costs for most hotels, Legoland included. However, Lim maintains that prices and services will stay the same.

"We are (also) not reducing our facilities or attractions that are currently available," he said.

Coping strategies

Lim's remarks suggest that there is no one-size-fits-all strategy for hotels.

That said, MAH's Toh advises that any cost-saving measure MAH members adopt should not compromise quality, but rather, prioritise guests' experience and comfort.

"Sacrificing service quality for short-term savings could have long-term repercussions for the entire industry," she said.

Hotels aside, other players in the hospitality industry have also had to contend with the SST hike. And these businesses too have had to weigh various factors.

For instance, campsite operator KK Chan said he has refrained from raising rates despite the SST going up. Even so, the owner of 2K Hotspring Campsite in Ulu Yam, Selangor is quick to note that his business's considerations are vastly different from some of his competitors.

"Many of our visitors are locals, though we do have some foreign tourists coming to stay. But (the main thing) is that our site is more basic.

"Ours is just a campsite (with minimal amenities). Glamping sites (on the other hand) can offer amenities and facilities on par with some of the higher-end hotels."

Alternative accommodations

All the above notwithstanding, the big question remains — how do Malaysians, who are already being hit with a long list of cost of living concerns, cope?

For Aisya Abdullah, the solution might well be alternative accommodation, like vacation rentals, guest houses and homestays.

The mental health counsellor and artist said with the poor exchange rate and having to pay for rent, utilities and loans, travelling and staying in hotels on vacation can be costly. As such, she is considering making changes.

"I think I might emulate the way of one colleague, which is to go for homestays or Airbnbs, in a group. That helps to defray costs and spread the burden," Aisya said.

Professional knife and tool sharpener Loh Yiren shares Aisya's view. But he confesses that he had already been very careful in planning domestic stays even before the SST increase.

"If there are cheaper alternatives, I would often stay in those rather than hotels. Now, I will still pay for hotel stays if the value seems justified. Maybe just not as frequently as before," Loh said, adding that he and his family are also likely to take fewer holidays.

"But to be honest, we'd been going for Airbnbs and other short-term options for some years now. They're more affordable than hotels, though not nearly as nice."

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