Malaysia's 8% SST in 2024 – Insights for Hoteliers

~Updated on 19th February 2024~

In response to the recent announcement in Malaysia's Budget 2024 presented in Parliament, a significant development is on the horizon that may cast a substantial impact on the hotel industry. There is an increase in the Sales & Services Tax (SST) from the current 6% to 8% which will take effect from 1st March 2024. 

What is SST?

SST is a short form for Sales and Services Tax - a consumption tax imposed on the sales of goods and certain services in many countries including Malaysia. It is a key component of the country's taxation system and is designed to generate revenue for the government. SST is distinct from the Goods and Services Tax (GST), which it replaced in Malaysia in 2018. Hence, it is important for businesses who are compliant to collect and remit SST, to have a better understanding of what goods and services are subject to the tax to ensure accurate reports and remittances to the government. 

Malaysia to increase SST from 6% to 8%. Is this confirmed?

According to the recent budget announced by the Prime Minister in October 2023, there is a proposed increase in SST by 20% which is from 6% to 8%. This change has been widely communicated and has been officially announced on MySST's official website which will take effect from 1st March 2024. 

On a side note, the SST increase does not extend to Food & Beverages (F&B) services. However, we know that the hoteliers are still confused on this part, hence, further clarification is still needed especially for hotels that provide F&B services for events and meetings at the hotel. 

How does this impact the hotel businesses? 

The changes ahead are big for hotels in Malaysia, from various factors that affect the operations, finances, and guests' experience. Let's break down what this could mean, particularly in operational costs and pricing strategies, which may shape the course for the hotels. 

1. Operational Costs

   Thinking from every perspective from keeping the room clean and tidy to ensuring the lobby looks welcoming, these all involve cost. Now with the SST increase, the costs might go up. For example, the cost of the linens, towels, and toiletries supplies. Hotel owners and management have to decide whether to absorb the extra costs or the room charge has to be adjusted
   
   

2. Pricing Strategies 

   Setting the right price is one of the crucial strategies. You want it to be just right, not too high for guests or too low that it hurts the bottom line. With the SST increase, finding that win-win spot could be a tricky part. Hotels might need to adjust room rates or service charges to balance the increment in operational costs. 

SST Rate Transition Guideline

We understand that the transition to updated SST rates may raise questions and concerns for both hotel owners and guests, especially on the bookings that you received before 1st March 2024 for the stay date on or after 1st March 2024. Hence, we created a flowchart below for your reference. 

Disclaimer: This flowchart was compiled following the draft guideline shared by the Royal Malaysian Customs Department and is subject to change.

Here's what you need to know to navigate the transition seamlessly: 

1. Deadline for Current Rate: 
   If booking payment was made by 29th February 2024, a 6% SST rate is applicable, regardless of Check-In and Check-Out dates.
   
   
2. New Rate Effective 1st March:
   If booking payment was made on or after 1st March 2024, it is subject to an 8% SST rate, irrespective of Check-In and Check-Out dates.
   
   
3. Applicability to OTA Channel Collect Payments:
   We were informed verbally by the Custom Office officer that points (1) & points (2) also apply to "Channel Collect" bookings made through Online Travel Agencies (OTAs).

**NOTE: The above are based on the draft guidelines and verbal advice received from RMCD.

What Hoteliers Need to Do 

Now that we have explored the potential impacts, let's outline the strategic approach for hoteliers to proactively address these changes. 

1. Stay Informed

   Stay updated on any important announcements made by the RMCD. 
   
   

2. Review Budgets

   Evaluate current budgets to anticipate the impact of the SST increase on operational costs.
   
   

3. Adjust Pricing Strategies

   Be prepared to tweak pricing strategies to maintain a competitive edge while covering increased costs.
   
   

4. Update Tax Settings

   Ensure that the tax settings on the property management system (PMS) and booking engine accurately reflect the proposed SST increase. The same goes for your OTAs tax settings. 
   
   In Softinn, we provide tax-setting features in both the Booking Engine and PMS. As a service provider, we highly recommend our hotel users add a new tax of 8% SST instead of replacing the current SST format. It is recommended to stay in touch with your service provider and seek their advice. 
   

5. Explore Partnerships

   Consider collaborating with suppliers and exploring bulk purchase options to mitigate rising costs.
   
   

6. Enhance Efficiency

   Identify areas for operational efficiency to offset increased expenses.
   
   

7. Communicate Effectively

    Keep your guests informed about any changes in pricing to manage expectations. 

Conclusion

In summary, following the changes in SST percentage from 6% to 8%, hotel owners must take proactive measures.  This means making smart decisions to not only handle the changes well but also to come out strong and flexible in a changing economy. By making thoughtful adjustments, hotel owners can still offer great experiences to guests while keeping the businesses financially healthy. The key is to be ready for changes, adapt, and stay resilient in the face of economic shifts.