Malaysia Tourism Tax: Sabah and Sarawak Question the Federation of Malaysia

Hotel Sandakan, Sabah

Sabah and Sarawak in Malaysian Borneo claim that most of the money from the new tourism tax will directly go to the coffers of the Federal Ministry of Budget without any benefits for local revenues. The row shows also a growing discontent between Malaysia Federal government and federated states.

While the Federal Government of Malaysia is introducing its new Tourism Tax by the end of the week -on July 1st-, two States refuse to apply the voted tourism tax: Sabah and particularly Sarawak -both States being in the Malaysian part of Borneo, commonly called East Malaysia- rejected the new tax on tourists. Sarawak is even the most vehement against it.

Polemics emerged as many States feel that they have been left out with the introduction of the new tourism tax, which will request tourists to pay a tax between RM2.50 (US$0.58) and RM20 (US$4.75) per room per night for accommodations rated from four to six stars.

The State of Penang indicated not to have been officially informed by the government while Sarawak and Sabah claimed that the new tourism tax as drawn by the government would not bring any revenue to both States. According to Malaysia federal constitution of 1963, tourism activities and revenues have been left to federated States. In that case, the nationwide tourism tax and its collected revenues going directly into the coffers of the Central Government in Putrajaya has been seen as a breach into the federated law. Both Sabah and Sarawak have asked the government to defer the tax. They even went further by refusing to implement the tax if no agreement was found with the Central Government.

“Sabah wants to contribute ideas and proposals to fine-tune certain provisions of the Act to strengthen the tourism industry. The industry has been a very resilient industry, and at times the savior of Malaysia’s economy during challenging times”, explained Sabah Tourism Minister Masidi Manjun.

“In the case of Sabah, it is the only major industry controlled by locals in terms of employment and therefore, crucial for the government that the industry is well-managed and regulated,” he said in a recent statement.

While Deputy Prime Minister Ahmad Zahid Hamidi explained that a recent spat over the tax implementation between Sarawak Minister of Tourism and the Federal Minister of Tourism and Culture was over, the reality looks different.

Sarawak Chief Minister -who used to be before Sawarak Minister of Tourism- Amar Abang Johari Tun Openg has announced that it would be most unlikely that the tax would be implemented from July 1st. A similar statement was issued by Sabah. Sabah and Sarawak are due to meet in July to make a joint stand for a memorandum with the Federal Government and see how a compromise would be found.

In the reality, it seems that most hotels have not been informed over the way to implement the tax and the way to collect and transfer it to the Federal treasury. That would be a temporary and brief respite for tourists to Malaysia!

The row between federated States and the Central Government in Malaysia shows however a worsening in the relations between federated States and the Federation. The Malaysia Act of 1963 clearly fixed the devolution of powers between the various protagonists and the balance to be found when sharing power. Borneo joined late the Federation -in 1963, six years after the formal independence of Malaysia and the formation at that time of the Federation of Malaya and Singapore.

Debates have been revived in recent years over the creation of the Federation itself. Did both States of Sabah and Sarawak joined the Federation of Malaysia as equal partners with Malaya and Singapore or were they considered from day 1 as merely equal to other states of the Federation of Malaya (Peninsular Malaysia)?

The Federal Government looks rather for the second while Sabah and Sarawak believe to have kept large chunk of autonomy in decisions. Problems emerged in recent years over financing and royalties: Sabah and Sarawak claim to contribute financially more to the Federation than the Federation does for them, especially with revenues from the gas and oil industry.  Concerns also emerged a few years ago over religious issues and discrimination as Sabah and Sarawak have large non-Muslim populations. In Sarawak, Christians represent 46% of the population while in Sabah, Muslim represent 66% of the population.