TOURISM INCENTIVE: GOOD OR BAD INITIATIVE IN TOURISM INDUSTRY

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TOURISM INCENTIVE: GOOD OR BAD INITIATIVE IN TOURISM INDUSTRY ABSTRACT Tourism industry is sixth largest contributor to the national revenue. The industry is geared by various key players. Many factor affecting the increased demand and successful operation of tourism industry. The factors are wide coverage of promotion, better public and tourist-related services and grant of funds and incentives. Is there any subsidies involve; as subsidies sometimes may result to an inappropriate end. In addition, does the funds and incentives given is the main pulling factors of increased revenue in tourism industry. Thus, the paper will explore the good and the bad side, if any, of the funding and incentives initiative in tourism industry. The discussing also covers the implementation of the incentive and the achievement of it. Keywords: tourism industry, funds and incentives, tourism promotion. ABSTRAK Industri pelancongan merupakan penyumbang terbesar keenam kepada pendapatan negara. Industri ini digerakkan oleh pelbagai pihak secara langsung dan tidak langsung. Banyak faktor yang mempengaruhi peningkatan permintaan dan kejayaan operasi industri pelancongan. Antara faktor-faktor tersebut adalah liputan promosi yang meluas, penyediaan perkhidmatan awam dan perkhidmatan berkaitan pelancongan yang lebih baik dan pemberian dana dan insentif. Adakah terdapat apa-apa dana dan insentif yang melibatkan pemberian subsidi, kerana kadang kala ia boleh mengakibatkan kesan luar jangka yang berlainan dan tidak dikehendaki. Walau bagaimanapun, adakah dana dan insentif yang diberikan adalah faktor utama menarik peningkatan pendapatan dalam industri pelancongan. Oleh itu, kertas itu akan meneroka kesan baik dan buruk, jika ada, pembiayaan dan inisiatif insentif dalam industri pelancongan. Perbincangan juga meliputi pelaksanaan insentif dan pencapaian dalam pelaksanaan insentif yang terlibat. Kata kunci: pelancongan, dana dan insentif, promosi pelancongan. INTRODUCTION Malaysia’s planning towards Vision 2020 is a noble intention to be a developed nation as well as high-income nation. As such, Malaysia had undergone several transformation and reformation in policy and way forward. The planning gradually changes from agricultural centric to industrial centric. From small scale to a larger high-end scale. All these effort done to gain better revenue for the country, to provide better living and achieving high-income nation in the near future. There are several means and sources of nation revenue in order to gain rapid economic growth. One of the sources is from tourism industry. Tourism industry plays a vital role for the economic development and economic growth. Therefore, a special and dedicated ministry and organizations have been established to work on the tourism industry. Different organization tackles different elements and parts of the tourism industry. Some organization provides facilities while the other provides services such as promotion. On the hand, government usually provides funds and incentives as well as promotion of the tourism industry. Legal framework also provided and put in place in order to control and manage the tourism industry. The effectiveness of the role by the players is a must. Public awareness and promotion must be handled properly and runs as wide as possible; nationally and internationally. Thus, the objective of this paper is to look into the implementation of incentive programs by the agencies; government and non-government organization. The paper try to examine whether there is adverse impact, side impact or bad impact through the implementation of the incentive program. References have been made to several materials from articles, journals and websites to gain information on the subject matter. TOURISM INCENTIVE PROGRAMS AND FUNDS INITIATIVES There are several incentive and funds provided by the government to the tourism industry player. Such incentives have been introduced to promote the tourism industry. In fact, there is a special act enacted to promote investment including tourism sector. One of it, Promotion and Investment Act 1986, hotel businesses and tourism related activities are eligible for pioneer status or investment tax allowance to promote the sector[1]. Tax incentive have been define as provisions in the tax legislation that give privileges treatment to specific industries and activities considered crucial for development[2]. The investment tax allowance as stated above is given for establishment of medium and low cost hotels, tourist projects, conventions centres and recreational campus. In addition, it includes the expansion of existing hotels and the modernisation of tourist projects. Such projects are very important to promote tourism industry to local inbound and outbound tourist. Furthermore, this allowance does not end there. The hotels which have been granted with these status can further apply and eligible for Industrial Building Allowances (IBA)[3]. The hotels operator or owner will be given 2% annual allowance on the capital expenditure on the construction or purchase of a building used in the hotel business. There are also incentives for reinvestment in hotel. This incentive is above and over the investment tax allowance which have been discussed earlier. This is another round of allowance. All these allowance incentive; pioneer status, investment tax allowance and incentive for reinvestment, are available upon application to be submitted to Malaysia Investment Development Authority (MIDA) and applicable until 2016[4]. Besides that, there are other incentives for the tourism industry. Income Tax Act 1967 provides incentives of exemption from tax as statutory income level. The exemption includes group and domestic tours. Companies which handled at least 500 foreign tourists a year will be exempted from tax. Same goes to domestic tour package with at least 1200 local tourist per year. However, this exemption tax incentive is only up to year 2006 only. These incentive falls under several government agencies in Malaysia. Malaysia External Trade Development Corporation (MATRADE), Malaysian Investment Development Authority (MIDA) and Ministry of Tourism and Culture (MOTAC) are several government agencies that involve directly in tourism industry. They provide the incentive in tourism sector to promote, upgrade and develop the industry. Hotel and tours operators are the main beneficiaries from the incentive and fund provided by the government. They can have double deduction for promoting tourism in overseas[5]. For example, they can benefit from double deduction of tax for expenditure on publicity and advertisement in any mass media outside Malaysia. Similarly, any expenditure on market research for new markets overseas may have benefited by the deduction too. These deductions incentive is given to acknowledge the promotion of Malaysian tourism outside Malaysia. Moreover, MOTAC also provide Tourism Infrastructure Funds. It is purposely initiated to assist tourism entrepreneurs to develop or expand the tourism-related projects development[6]. This program is a financing program to tourism project including acquisition of land up to 40% maximum from the actual cost. This fund is eligible for projects in Malaysia for integrated and regional tourism centre, attractions, facilities and complexes. On the other hands, World Wildlife Fund (WWF) which is operating transnationally also provides fund for tourism industry. But, the fund is more on the nature protection purposes. The WWF is reported to assist hotels and destination for environment upgrading[7]. It is the objective of the organization to promote and protect the environmental be it flora or fauna. As such, there are a lot of incentive and funds provided in Malaysia for tourism industry. Only several of them are briefly discussed as per above writing. Other incentives are expected to be provided until the targets for tourism industry are fully achieved. INCENTIVE: ARE THERE ANY CONSs OVER PROs? Reviewing the incentive and funds provided above, it shows that the incentive had contributed to the increased revenue from the tourism sector. The tourism sector revenue increased from year to year. In 2013, the tourism industry ranked as sixth largest contributor to the national economy[8]. It is 8.1% growth increased from 2012 foreign exchange earnings. This increment is partly resulted from the incentives programs and funds provided. It is also agreed by some scholars that hotel and other services are influenced by the tourism industry. A strong tourism industry and growth of the sector ensured rapid expansion of development of hotel[9]. Not only hotels are built, other ancillary services are also rapidly built up due to the rapid growth of the industry. However, does the implementation of the incentive and funds run smoothly? It is reported that 3648 new 4-5 star hotel have been built and completed in 2012 coming from the fund and incentive introduced by the government[10]. Despite the completed project, there are also hotel which still under construction which is expected to be delivered in early 2014. The government believe in the successful of this program and looking forward to bring more 4-5 star hotels. In the implementation of the incentive, there is at least a dispute among the hotel operators. The dispute might be between the ministry or Inland Revenue Department. In Saujana Hotel Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri[11], the eligibility of the allowance has been questioned. It is fact that the Saujana Hotel Sdn Bhd (Saujana Hotel) had applied for investment tax allowance and been granted. However, the application for industrial building allowance have been rejected or stopped after the expiration of five (5) years investment tax allowance. The court held that Promotion of Investment Act 1986 did not restrict time period as limitation imposed to investment tax allowance. Meanwhile, there are debates on the pioneer status incentive or also known as tax holiday in international arena. It is argued and critics that tax holiday incentive are one of least efficient and the most costly[12]. This incentive is said to be unnecessary as the profitable projects would be pursued regardless of the incentives. The business in the tourism industry of hotel operators and building of it is a profitable one. Thus, the incentive is no more efficient to be out into the picture. CONCLUSION The initiative to provide incentives and funds program under tourism industry have developed the tourism industry in Malaysia. There are no forms of subsidies-like incentive as the literatures have been reviewed. The incentive program turn to be a good starting point to further upgrade the tourism sector and industry in order to achieved high income nations as well as developed nation. The incentive does give a handful help towards tourism player. Tourism business which is formed part and parcel of the tourism industry might benefited a lot from the steps taken. There are still a room for improvement. Destination branding is one of major part in packaging tourism for the domestic and inbound outside tourists. There is research done to associate destination brand images to the business[13]. This association are rarely apprehend in Malaysia, or might been look into indirectly. We usually see that our tourism destination is not properly managed. The destination brand images should be one of the opportunities under the incentive program to sustain and maintain the tourism destination. Projects need to be relooked most probably every year to accommodate more tourists in the future. A mass use of the tourist destination surely need time to be regenerated and refresh to a new look. Currently, the incentive program is only focussing on the hotel and tour operators. It is high time that the incentive should be widen to cover the nature protection as well similar to the move by WWF side by side with the maintenance of the site. As environmental law and issue might grow stronger and louder, the steps to protect nature and the environment need to be granting some funds or incentives, especially from government agencies. Besides, the incentive towards low cost facilities should also been continued. It should not stop like the group tour operators because the incentive might be good for small and medium enterprises. The small companies need some pump-in to score goals in their business as the incentive given to bigger companies to erect 4-5 star hotels. Thus, it would be much appreciated if the incentive also covers the SMEs. Finally, the government and the private sectors need to work hand in hand and not only chasing the incentive but rather focussing to upgrade and develop the tourism industry in particular and the nation in a whole. REFERENCES Anne-Mette Hjalager , MCB University Press, Quality In Tourism Through The Empowerment Of Tourists, Managing Service Quality, Volume 11, Number 4, 2001, pp. 287-295 Brendan Williams, Emerald Group Publishing Limited, Fiscal Incentives And Urban Regeneration In Dublin 1986-2005, Journal of Property Investment & Finance, Vol. 24 No. 6, 2006, pp. 542-558. Graham Hankison, Journal of Service Marketing, Emerald Group Publishing Limited, Destination Brand Images: A Business Tourism Perpective, 19/1 (2005) 24-32. Lydia Thiagarajah, Jeyapalan Kasipillai, Malaysian Law Journal Articles [2012] 4 MLJ ixx, Malaysia’s Tax Holiday Incentive: A Bouquet Or A Brickbat?, 2012. Saujana Hotel Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2011] 9 MLJ 213 www.kpmg.com.my/kpmg/publications/tax/tm/chapter5.pdf www.matrade.gov.my, Hotel and Tour Operators. www.mida.gov.my, Incentive For Tourism Industry. www.motac.gov.my, Tourism Infrastructure Funds. www.pemandu.gov.my, ETP Annual Report 2012, page 127. www.tourism.gov.my, Media Release, 27 February 2014.
[1] www.kpmg.com.my/kpmg/publications/tax/tm/chapter5.pdf [2] Lydia Thiagarajah, Jeyapalan Kasipillai, Malaysian Law Journal Articles [2012] 4 MLJ ixx, Malaysia’s Tax Holiday Incentive: A bouquet or a brickbat?, 2012. [3] Supra, page 48. [4] Incentive For Tourism Industry (www.mida.gov.my) [5] Hotel and tour operators (www.matrade.gov.my) [6] Tourism Infrastructure Funds (www.motac.gov.my) [7] Anne-Mette Hjalager , MCB University Press, Quality In Tourism Through The Empowerment Of Tourists, Managing Service Quality, Volume 11, Number 4, 2001, pp. 287-295 [8] Media Release, 27 February 2014 (www.tourism.gov.my) [9] Brendan Williams, Emerald Group Publishing Limited, Fiscal Incentives And Urban Regeneration In Dublin 1986-2005, Journal of Property Investment & Finance, Vol. 24 No. 6, 2006, pp. 542-558. [10] ETP Annual Report 2012, page 127 (www.pemandu.gov.my) [11] [2011] 9 MLJ 213 [12] Lydia Thiagarajah, Jeyapalan Kasipillai, Malaysian Law Journal Articles, [2012] 4 MLJ ixx, Malaysia’s Tax Holiday Incentive: A Bouquet Or A Brickbat?, 2012. [13] Graham Hankison, Journal of Service Marketing, Emerald Group Publishing Limited, Destination Brand Images: A Business Tourism Perpective, 19/1 (2005) 24-32.
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