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Sabah must tread carefully on Tourism Tax
Published on: Sunday, July 16, 2017

By Datuk John Lo
The Federal Tourism Minister tabled the Tourism Tax Bill 2017 in April 2017 for the Federal Government to collect an estimated RM654.62 million.

Members of Parliament have passed this Bill.

It would appear that there was insufficient thought or lack of consultation on this Bill. Its implementation date was supposed to be 1 July 2017 but has been postponed to 1st August 2018 after protest by Sarawak and Sabah.

Further delay has been announced. One of the reasons, according to Sarawak, was that this particular Bill is not in keeping with the spirit of the Malaysia Agreement. This is the first time any state government has used the Malaysia Agreement to oppose a bill that has been approved by Parliament. The conclusion will be most interesting as it has fundamental constitutional implications far beyond the Bill.

This is beyond me and is for constitutional experts and the Federal Court to resolve.

The Tourism Minister has also made pertaining announcements in the press on 7 June 2017, 11 June 2017 and 6 July 2017 respectively which Sabah must examine carefully to avoid being shortchanged and disappointed later.

Better to get these promises now in firm, formalised, written arrangement so that we don’t need to complain later. Friendship, political relationship can flourish better on concrete arrangement and not in the air.

So far, the Minister’s statements are very general without clear direction and clarity on detailed implementation.

Because of this, I would like, probably out of ignorance of official procedures, to raise some fundamental issues. The Tourism Tax Bill 2017 is expected to raise several hundred million Ringgit which is not chicken feed.

Where will this revenue to be collected by the Custom Department go? To the consolidated fund controlled by the Treasury of the Ministry of Finance or to the Ministry of Tourism? If to the former, what are the legal and government financial administrative procedures in place for the revenue collected to be given to the Federal Ministry of Tourism apart from the annual budget? Where is the legal authority for this revenue to be dedicated to this Ministry? Or will this amount be allocated by the normal annual budget by the Ministry of Finance?

If so, how will the Minister of Finance be obligated to allocate the amount to be collected in his budget every year?

If the revenue collected under the Tourism Tax is to be handed over to the Federal Ministry of Tourism, this is not, as far as I know, the normal practice as all government revenue goes into the consolidated fund controlled and administrated by the Ministry of Finance. This revenue going direct to the Federal Ministry of Tourism, I think, needs a specific authority by Parliament. There is no such authority in the Tourism Tax Bill 2017 which contains 10 parts, for the Ministry of Tourism to keep this revenue. The collecting agent department is Customs which does not have the authority to hand over this revenue to Ministry of Tourism.

Similarly, there is no provisions in the Tourism Tax Bill 2017 for the Federal Ministry to spend the revenue collected or to divide the total amount collected to be divided into 3 parts, 1/3 of which, the Minister has promised, will be given to Sabah. The Tourism Ministry can only spend money allocated to it by the national budget.

Those wishing to read the actual Tourism Tax Bill 2017, please access to: https://www.cljlaw.com/files/bills/pdf/2017/MY_FS_BIL_2017_12.pdf Let me reiterate my caveat – I do not know where the Federal Ministry can draw on the authority to collect, receive and spend the specific revenue generated by the Tourism Tax Bill 2017 as the Minister has said in the press.

It will serve Sabah’s interest to ascertain the above points to protect our interest vis-à-vis the promises that the Federal Minister has made. Sabah needs to tread carefully so that we can get what is due to our State.

If the Minister does not have the authority to collect, receive and spend this tax, then we need to go back to the drawing board to negotiate again. If he does not have the necessary authority, it will be more than likely that Sabah will not get 33.3pc now or in the long term. The Federal Government has never granted such a large allocation for Sabah for tourism in the budget!

In the unlikely scenario that the tourism tax revenue will be at the discretion of the Tourism Minister to spend or allocate, there must at least be an administrative system for Sabah to get what’s promised to us.

Better still incorporate a clause in the Tourism Tax Bill 2017 to make it a certainty. Need to bear in mind that past amounts for tourism promotion from Federal Government have not at all been impressive in relationship to Sabah’s tourism potential. It must be reiterated that Sabah’s success in tourism has been largely driven by Sabah Government with substantive budget allocations from Datuk Musa every year since he became Chief Minister in 2003.

Tourism Minister’s Promise No. 1: The tax revenue “would be spent on tourism and infrastructure development throughout the country”.

This is a scary general statement, quite directionless. How will the tourism tax revenue be spent on tourism and infrastructure development? What amount will Sabah get? Will Sabah Government get the cash direct so that it can spend as it deems fit. I am not at all confident if the A to Z of tourism development and money are from Putrajaya. Our tourism development record is second to none. It is more effective, cost and time wise, for the money to be handed over to Sabah Government. Any other arrangement will result in many frustrations.

We cannot allow history to repeat at our disadvantage.

Tourism Minister’s Promise No. 2: The tax revenue “will be used to promote Malaysia overseas and refurbish tourism facilities”.

Another scary general statement. What should have been done is to have an implementation plan ready before presentation of the Tourism Tax Bill 2017. The present situation is neither here nor there.

The Sabah Government is better placed to promote Sabah in other countries like what we have been doing.

Sabah is fast becoming like a Bali situation where the Balinese are better at promoting the island than the Government.

Tourism Minister’s Promise No. 3: “Sabah and Sarawak stand to benefit the most from tourism tax collection, which will be shared equally between the 2 states and the peninsula”. Further he said, “The collection will be divided into 3 parts with each of the areas getting a 33.3pc share.

If indeed 33.3pc of the tourism tax revenue can come to Sabah, it will be really fantastic.

The amount will come to almost RM200 million which Sabah Government will need for our next tourism big push as Sabah International Convention Centre is about ready. So much can be done with this money.

But I am not all assured this 33.3pc will come to us. Where is the law or authority for Minister of Tourism to give Sabah this amount?

Tourism Minister’s Promise No. 4: The States can also collect their own tourism or heritage taxes while we collect the tax for federal”.

Penang has been collecting tourism tax for a while so this is only a platitude. What should be done in a sensible way is to review the whole tourism industry with the view of upgrading tourist arrivals. Malaysia’s tourist arrival number is impressive in number but tourism receipts are very far behind other countries like Singapore and UK on per pax basis. If Malaysia wants more revenue out of tourism, then we must upgrade the tourist arrivals.

The more well-off tourists are less price and tax sensitive.

Those in Sabah who are in support of implementation of the Tourism Tax Bill 2017, please think again for they are many more questions than answers. The crux is who will make the final decision on spending the revenue – Federal Ministry or the Sabah Government. It is not like a choice of one bird in hand is better than 2 birds in the bush. As I see it now, there is no bird in our hands yet. We must think and ensure we have at least one bird in our hands first by seeking clarification and clarity on the basic points in the Tourism Tax Bill 2017.

Where possible, our preference should be for Sabah to receive the revenue from the Tourism Tax Bill 2017 DIRECT. Don’t accept an arrangement whereby we need to beg on bended knees in future.

I have written before and will say it again. I am all for Sabah Government to introduce a Sabah Tourism Tax Bill.

The Federal Government should withdraw this law. It is overdue time to decentralize the development and promotion of tourism so that Sabah can go on our own steam, at a direction and speed that we want.

Also for Sabah’s future tourism strategic expansion plan, we need consistency in funding.

The present lack of clarity and system is very worrying. The present Tourism Minister may give promises but these just promises on the newspaper. Then there is the real concern on what is going to happen when there is a change of minister! Sabah must be in for the long term in tourism as it has become a major pillar in Musa’s vision. Tourism is already big for Sabah and is set to grow much bigger.

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