This article first appeared in The Edge Malaysia Weekly on October 20, 2025 - October 26, 2025

Budget 2026 is a careful one, and demonstrates the Madani government’s determination to bring its finances under control while still investing in growth. The target to narrow its fiscal deficit to 3.5% of gross domestic product (GDP) in 2026 also indicates welcome discipline and restraint. Yet, fiscal prudence alone will not generate new revenue. Malaysia now needs to turn that stability into income, and tourism remains one of the most immediate ways to do so.

The numbers already make the case. Tourism contributes about 15% of GDP (2024) and supports millions of jobs. It multiplies spending faster than most sectors and draws in both domestic and foreign demand. What makes this budget different is that it recognises tourism not only as an engine for visitors, but also as a tool for long-term revenue and economic inclusion.

More than RM700 million has been set aside for tourism, including RM500 million for Visit Malaysia (VM) 2026. Funds are also flowing into airport upgrades in Penang, Kota Kinabalu, Tawau and Miri, and there is a new RM1,000 personal income tax relief for domestic attraction fees and cultural activities. These are important signals.

Crucially, domestic tourism has become a powerful engine for the visitor economy. Malaysians spent nearly RM98 billion on “Cuti-Cuti Malaysia” in 2024, and that spending anchors thousands of small businesses. It is the quiet success story that keeps guides, small hotels, homestay owners, restaurants and transport operators working — alongside fresh momentum in international travel.

The challenge now is to build on this base. Future policy could go further by incentivising longer stays, diversifying itineraries beyond traditional hotspots and supporting community-based tourism projects that spread income more evenly. Every additional night spent in a local stay, every small-town food trip and every homestay experience brings new receipts into the formal economy.

The real value of Malaysia’s tourism story lies in its culture. Travellers come for the authenticity of food, festivals, crafts and heritage streets, which are all experiences that cannot be copied elsewhere. When policy supports these strengths, the results are not only cultural but also economic.

Digital platforms such as online travel agencies (OTAs), metasearch platforms, experience booking platforms and short-term rental accommodation (STRA) platforms make Malaysia’s tourism ecosystem visible to the world. They level the playing field by giving micro-entrepreneurs, homestay owners and small tour operators the same global reach as larger brands — unlocking demand from new markets and travellers.

The results are now visible in traveller intent. Search data from Skyscanner (2025) shows a 433% year-on-year increase in searches by travellers in India for Langkawi, and a 237% rise in Japan for Miri. Malaysia’s growing digital visibility is translating into real travel interest ahead of VM 2026.

For the government, digital channels enhance market transparency and make it easier to monitor trends, understand demand and ensure that tourism activity remains accountable. This is where technology and heritage meet: modern systems that keep living culture visible, viable and connected to the global traveller.

The RM1 billion in digitalisation grants and RM20 billion in micro, small and medium enterprise (MSME) financing announced in the budget can help tourism operators accelerate their adoption of digital tools. The government’s “AI Nation 2030” vision could also find its first tangible successes here, through smart data tools that help destinations manage crowd flows, identify emerging attractions and support environmental planning.

As Malaysia moves ahead with the Cybercrime Bill in 2026, building confidence in online transactions will be just as important, since trust is the backbone of a strong digital tourism economy.

The effort to finalise national STRA guidelines is welcome. It will help Malaysia move towards a single, transparent framework that improves safety and confidence for all. The intent is sound, but two elements need fine-tuning if the framework is to support VM 2026 effectively.

A blanket 180-day operating cap would unfairly restrict hosts in commercial-titled properties that are built for year-round hospitality. Meanwhile, requiring 75% annual general meeting approval in residential strata could make participation impossible for many potential operators. Both rules risk shrinking legitimate capacity just as demand is set to peak — limiting revenue, reducing accommodation options and dampening the fiscal impact of VM 2026.

A more balanced approach would be to exclude commercial-titled properties from both limits, where the intent of use is already distinct from residential housing. This would keep the focus of the guidelines on genuine community and safety considerations, rather than reducing supply ahead of VM 2026.

STRA hosts are part of Malaysia’s tourism infrastructure. They support family travel, spread visitors across communities and extend the reach of the budget’s own tourism investments. Moreover, with domestic visitors accounting for 67% of Airbnb guests in Malaysia, STRA is already anchored in local demand and everyday Malaysian travel patterns. The way Malaysia regulates STRA will signal whether we want an open and modern tourism market, or a restrictive one.

Hotels and STRAs each play essential and complementary roles. Hotels remain the backbone of Malaysia’s global 

tourism brand, while STRAs expand capacity, support group travel and channel visitor spending into communities across every corner of the country. The key is a framework that allows both models to thrive and give travellers confidence in their options.

The same pragmatism is needed on the tourism tax. For the past two years, the Ministry of Finance and Royal Malaysian Customs Department have operated a clear, principle-based approach: the party that receives payment, whether hotel or online platform, collects and remits tourism tax.

When a booking is paid to a hotel, the hotel pays; when payment is made through a platform, the platform pays. This model has worked well. It has supported compliance across channels, reduced ambiguity, and made remittance and enforcement straightforward.

The current arrangement is in place until the end of 2025. Maintaining the same collection principle beyond that date would preserve the clarity already achieved and provide certainty for both operators and travellers. A consistent “one transaction, one collection point, one accountable party” approach keeps the system simple, prevents double taxation and supports the government’s wider aim of stable, predictable revenue.

As Malaysia prepares to welcome the world for VM 2026, policy stability also matters for the traveller experience. A smooth tourism tax process reduces friction for international visitors and gives Malaysia an advantage in a highly competitive regional market. Simplicity is good economics, since it builds confidence, supports compliance and helps tourism flow as intended.

Budget 2026 shows a government that wants to be responsible, measured and focused. Tourism can turn that restraint into visible results. It distributes income, creates jobs quickly, and keeps culture and community at the centre of Malaysia’s growth story.

The online travel industry is ready to work with the government to ensure that these outcomes materialise: clear STRA rules that protect both residents and hosts, a tourism tax framework that remains workable, and digital tools that help small operators scale responsibly.

Tourism is already one of the country’s most reliable fiscal assets, and arguably its most “human” one. It will show whether Malaysia’s growth can be felt in communities, not just measured in accounts.

Mark Chan is managing director of the Asia Travel Technology Industry Association (ATTIA)

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