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Malaysia's tourism tax weighs on hotel shares

KUALA LUMPUR (Nikkei Markets) - Malaysian hotel shares are likely to remain under pressure for a while after lawmakers on Thursday decided to impose a tax on hotel rooms in a bid to boost state finances bruised by low oil prices.

The so-called tourism tax comes at a time when a weak Malaysian ringgit - it lost more than 20% against the U.S. dollar over the past three years - raises appeal of the already-popular tropical Southeast Asian destination speckled with glitzy shopping malls, sun-soaked beaches, and lush rainforests.

Analysts said the new tax -- to be paid by guests to operators of hotel and premises that accommodate tourists -- could add to the government's revenue at the expense of hotel operators' earnings.

"The tax will add pressure on the hotel segment," said KLCC Property Holdings' Chief Executive Hashim Wahir. The company manages the Mandarin Oriental hotel in down town Kuala Lumpur. "I am not very optimistic" on hotel occupancy rate this year, Hashim added. Mandarin Hotel Group is a subsidiary of Jardine Matheson Holdings.

To tackle the new charge, hoteliers are likely to pass the higher costs, at least partly, to the consumers, which will raise room tariff per night and potentially crimp occupancy rate, said Lee Meng Horng, an analyst at Hong Leong Investment Bank.

"The tourism tax will take out some of the expected earnings gains made on increased tourist levels this year," said Lee, "and if the ringgit reverses course and strengthens against the dollar, the impact will be even more pronounced."

The government estimates about 31.8 million visitors this year to Malaysia that could generate 118 billion ringgit ($26.6 billion) in tourism receipts. In 2016, some 26.7 million tourists visited Malaysia, according to data from the Tourism Ministry.

Analysts said stocks that may be hurt in the near-term include Genting Malaysia, which operates a hilltop casino resort that attracted more than 20 million visitors last year, and Shangri-La Hotels Malaysia that manages six hotels and resorts. Genting Malaysia is a unit of Genting that has business interests ranging from hospitality to plantation.

The government could collect about 654.2 million ringgit based on 60% occupancy rate, Tourism Minister Nazri Abdul Aziz was reported as saying by state news agency Bernama. If occupancy rate rises to 80%, the tax revenue could swell to 872.82 million ringgit, Nazri said.

Following the collapse of crude oil prices since mid-2014, the ringgit had plunged, making shopping and dining in Malaysia cheaper for foreign tourists. That has prompted Malaysia, one of Asia's few net oil-and-gas exporters, to slash government spending and raise revenue from other sources.

In April 2015, Malaysia implemented a consumption-based tax that was followed by other measures to curb tax evasion as the government sharpened focus on fiscal consolidation to trim its long-running budget deficit.

Genting Malaysia shares fell 0.2% to 5.49 ringgit on Thursday while Shangri-La Hotels lost 1.37% at 5.03 ringgit. The benchmark FTSE Bursa Malaysia KLCI ended down 0.3%.

--Jason Ng and Alexander Winifred

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

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