This article first appeared in The Edge Malaysia Weekly on April 8, 2024 - April 14, 2024

THE pressure is on Malaysia as its recovering tourism industry goes up against neighbouring giants in the intense pursuit of tourist volumes and revenue lost during the Covid-19 pandemic.

Data from Tourism Malaysia shows that the 20.14 million tourist arrivals in 2023 were double that of 10.07 million the year before and just 22.8% shy of the pre-pandemic level of 26.1 million international arrivals in 2019.

Total tourism receipts in 2023 was RM71.3 billion, a 2½-fold increase from the year before and just 17.22% short of RM86.1 billion in 2019.

“While the encouraging inflow of international tourists to Malaysia is helping industry players get back on their feet, the industry will have to act fast to capture tourist numbers as neighbouring Singapore and Thailand up the ante on tourist attractions,” Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio Economic Research Centre (SERC) executive director Lee Heng Guie tells The Edge.

Across the Causeway, apart from the Ministry of Trade and Industry’s promise of a minimum S$300 million (RM1.06 billion) injection to bolster its tourism sector’s post-pandemic recovery, the Singapore government broke the mould with the exclusive deal it struck with concert organisers for American artiste Taylor Swift’s Eras Tour last month.

By providing certain incentives to Swift, the city state ensured it was the sole Southeast Asia venue for her performances during the tour. Analysts estimate that the six sold-out concerts, held from March 2 to 9, generated S$260 million to S$375 million in tourism receipts for the city state.

Later in the month, Thailand announced a tax waiver for organisers of large international concerts, sporting events and festivals, with its Board of Investment promising to grant organisers of large international events costing more than THB100 million (RM12.94 million) an import duty exemption on equipment and to facilitate temporary entry of foreign staff.

The move prompted Communications Minister Fahmi Fadzil to state the following day that Putrajaya was exploring a similar tax break policy, much like that of the Film in Malaysia Incentive, which offers a 30% cash rebate for qualifying Malaysian production expenditure.

When The Edge asked for further details about the potential concert tax break poli­cy and other avenues that Putrajaya was looking at to boost tourism arrivals and aid travel operators in their recovery, Fahmi replied that it was too early to give an answer.

Economists whom The Edge spoke to last week believe concert tax breaks to step up the tourist momentum are certainly welcomed, seeing as the multiplier effect comes with positive spillovers to the airline and hospitality industry. They also feel that Singapore, by capitalising on Swift’s popularity, has taken its strategic planning in tourism up a notch via concerts for the nation.

SERC’s Lee says: “It elevates tourism to a new level now by treating it as a strategic asset to generate billions [of dollars in] multiplier economic effects and revenue to its economy. It is similar to Thailand, whose [Prime Minister Srettha Thavisin] is very business-minded and has been aggressively wooing investors and tourists, especially from China.”

Notably, the competition for Chinese tourists is on, with Thailand extending its 30-day visa-free access to Chinese tourists from March 1, and China reciprocating in a similar vein.

Malaysia has followed suit, with the removal of visa requirements for Chinese and Indian tourists, Malaysia’s fourth- and fifth-largest tourist markets, from Dec 1, 2023, to Dec 31, 2024. For 2024, Malaysia has set its sights on 27.3 million tourist arrivals, with more than five million arrivals anticipated to come from China, while Singapore — which says it scored 327,000 Chinese arrivals in February, comprising 96% of the level seen in 2019 — expects to welcome about 15 million visitors this year.

Thailand, which is also halving taxes on alcohol to 5% and extending the opening hours of nightclubs and bars, has forecast eight million Chinese arrivals (compared with 3.5 million in 2023) out of a total of 35 million foreign arrivals this year. Thailand’s 28 million foreigners in 2023 spent THB1.2 trillion, government data shows, compared to its pre-pandemic record of 39.9 million total arrivals generating THB1.91 trillion, including 11 million Chinese arrivals.

Thailand is also waiting for Cabinet approval of a new mega entertainment project similar to the one in Macau — touted as the world’s biggest legal gambling hub — to attract affluent tourists while also checking revenue leakage from illicit gambling.

A study by a panel of lawmakers finds that the move could lift the nation’s tourism revenue by US$12 billion, with average tourist spending estimated to surge 52% to THB65,050 per trip once the entertainment hubs are built, netting additional earnings of as much as THB448.8 billion.

The proposal reflects a progressive and unified stance of the new Thai Parliament.

“The influence of religious political groups that have spoken out against hosting certain international concerts, for example, has been a drawback for Malaysia. We have lost many good opportunities and been deprived of the handsome revenues from such events,” remarks Malaysian Association of Hotel Owners (MAHO) executive director Shaharuddin M Saaid.

UOB Malaysia Global Economics and Markets Research senior economist Julia Goh observes that, with the help of the visa-free entry, Malaysia has seen an uptick in tourist arrivals from China.

“The ringgit weakness has also been a draw, particularly for Singapore visitors. Even with the higher service tax rate of 8%, from 6% previously, prices in Malaysia are still competitive compared with other countries,” Goh says.

The economists agree that Malaysia’s hard and soft infrastructure must be prepared to receive the expected 30% to 40% increase in tourists this year, and that the service quality and experience across all tourist touchpoints must be optimal.

“We have two years to prepare for Visit Malaysia 2026. Malaysia must showcase itself as an improved tourist destination post-Covid 19. There have been comments that certain airports and hotels in the country are in need of upgrading. The pandemic has dealt all players a heavy blow, but travel operators are encouraged to access facilitation funds for a timely refurbishment,” emphasises SERC’s Lee.

“Malaysia has all the right ingredients to promote tourism. It is the services [and narratives] that need working on.”

He adds that the frequent “headlines on religious and racial controversy as well as the boycotting of certain business groups” are detrimental to the nation’s image. 

All eyes are watching to see how the Tourism Ministry will capitalise on the ringgit’s weakness to boost the tourism sector.

Besides former Health Minister Khairy Jamaluddin, who, in a recent episode of his Keluar Sekejap podcast, called Motac out for a lack of planning and fleshing out of its Malaysia Truly Asia campaign, MAHO’s Shaharuddin posits in a similar vein: “More should be done to promote new or off-the-beaten-track destinations in Malaysia since many current ones have gone stale. There are no new markets simply because of poor accessibility and a lack of promotions by Tourism Malaysia.”

Meanwhile, many Malaysians are holidaying locally. According to the Department of Statistics Malaysia, there were 210.9 million domestic visitors in 2023, up 22.9% from 2022, albeit still 11.8% lower than the 235.79 million in 2019.

Domestic spending registered RM84.9 billion, which is up 32.5% from last year but down 17.7% from RM99.9 billion in 2019.

“Domestic travel still contributes significantly towards the tourism sector and helped [support] hotel and tourism businesses [through] the pandemic. But domestic tourism alone does not contribute [enough] towards hotels, [specifically those in] the three- to five-star categories,” Shaharuddin points out.

He explains that hotel players continue to be plagued by the high cost of doing business in coping with higher electricity tariffs and an increase in the minimum wage to RM1,500 while battling a manpower shortage as locals shun certain job functions.

In addition, while short-term rental accommodation (STRA) platforms such as Airbnb present vacationers with cheaper options, Shaharuddin is especially concerned about their deepening impact on the revenue of hotels.

He explains that hoteliers contend that STRA operators, “which are not regulated by the local authority”, are mopping up accommodation revenue from tourist arrivals while not contributing to Malaysia’s official tourism receipts.

Responding to Malaysian Association of Hotels Johor’s call for the government to regulate accommodation services such as Airbnb, following the hike in the Sales and Service Tax to 8%, from 6%, Airbnb last Monday said that in Malaysia, it “collects and remits RM10 tourism tax per listing per night” and “applies an 8% service tax fee to its Malaysian customers”.

“If Airbnb is not registered with the Ministry of Tourism, Arts and Culture (Motac), how can it charge customers a Sales and Service Tax and tourism tax? Where do those collections go?” questions Shaharuddin.

“Airbnb’s position has arisen as a serious issue because it is not regulated by our local authority. The government’s STRA guidelines are sorely needed, but neither the Ministry of Housing and Local Government nor Motac has released them despite being presented with a comprehensive 250-page proposal by a working group under Malaysia Productivity Corp. The ball lies in Motac’s court to straighten out this dilemma.”

Shaharuddin adds that the unchecked advantage of Airbnb is a threat to some hotel players in the two-star and below categories. Malaysia currently has more than 51,000 registered STRA listings. As academicians have pointed out, STRA players have brought about spillover opportunities to other complementary businesses, including the cleaning industry, food and beverage and other amenity providers.

Still, a thriving and sustainable tourism economy hinges on sound regulations that all stakeholders comply with.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.