THE soon-to-be-introduced air departure levy will not significantly impact on passenger traffic despite concerns by stakeholders, said aviation analysts.

The levy may not reduce the number of fliers as feared by some in the tourism and aviation sectors, they said.

Last week, International Air Transport Association (IATA) said the implementation of the departure levy could lead to the decline in number of air travellers departing from Malaysia by up to 835,000 per annum.

The airline trade association said some 5,300 jobs could also be lost as a result and the contribution of the aviation sector to the economy could reduce by up to US$419 million (RM1.73 billion). IATA urged the government to reconsider the move.

Under the proposed levy, passengers leaving for Asean countries will be imposed a levy of RM20 per person while those departing for other countries will be charged RM40.

Finance Minister Lim Guan Eng said last week the government is fine-tuning the levy’s implementing mechanism and is expected to make an announcement after the haj season.

Similar to past hikes on the passenger service charge (PSC), which did not lead to a decline in passenger numbers, Nomura analyst Ahmad Maghfur Usman said the departure levy is also less than likely to deter air travel.

“We think demand for air travel may see just a mild impact hitting growth as the levy only represents a small fraction of air fares and overall travel expenses,” he said.

“Similar to past passenger service charge (PSC) increases, we do not foresee a decline in air travel on this newly imposed levy.”

Citing statistics from the Malaysian Aviation Commission (Mavcom), Maghfur said the passenger traffic for non-Asean segment grew by 12% year-on-year in 2017, the same year the PSC was revised.

“Further, as this passenger levy will be for all passengers, we think airlines will find it easier to pass on the cost increase directly to passengers. By measure of those that can afford air travel, RM20-RM40 per pax is not much in the context of the total proportion to spending for air travel, in our view.”

Price-conscious travellers may also gravitate to low-cost carriers if the airfare increases once the levy is factored in. This, in turn, could allow low-cost airlines to increase their market share against full-service carriers.

Meanwhile, MIDF Research said in a report on Monday that countries, such as Thailand, Australia and Hong Kong, did not experience a decline in passenger traffic after imposing departure levies.

The research house said the levy is similarly unlikely to hamper air travel in Malaysia.

“Based on our analysis, countries such as Thailand, Australia and Hong Kong which have imposed departure levies did not experience a decline in passenger traffic.

“For instance, Thailand revised its international departure tax from 500 baht (RM65) to 700 from February 2007, but the number of international departures rose by 8.9% year-to-year.

“While international departures took a dip in 2008 and 2009, this was mainly attributable to the political turmoil faced by Thailand during that period which adversely affected tourism sentiment.

“Later in 2010, international departures rebounded by 8% year-to-year and thus, muting the impact from the hike in Thailand’s departure tax.”

In Australia’s case, passenger traffic has maintained an upward trajectory despite eight hikes to the passenger movement charge (PMC) between 1991 and 2017.

Hong Kong, which also experienced several revision to its air passenger departure tax (APDT), saw the number of air departure passengers jumping to 18 million from 13 million in 2004, the same year the levy was increased to HK$120 (RM63) from HK$80.

Tax revenue collected that year increased by 80%.

“This demonstrates the limited effect from an increase in the APDT towards the number of departing passengers from Hong Kong.”

Lim first announced the departure levy during the tabling of Budget 2019.

In the wake of the announcement in November, Mavcom raised concerns over the proposed levy in its budget commentary.

Mavcom said the levy meant for the government’s coffers is distinct from airport charges, such as the PSC, which serve as a revenue for the airport operator and to fund airport operations.

“In summary, the International Civil Aviation Organisation’s (ICAO) Policy on Taxation (Doc 8632-C/968) and Policy on Charges for Airports and Air Navigation Services (Doc 9082) state that any cost imposed on the air traveller should be utilised for the benefit of the aviation industry and any collection, without the intention to recover the costs of providing facilities and services for the civil aviation sector, is considered as a form of tax,” Mavcom said.

It said that ICAO is against the imposition of such taxes on travellers, especially when it is not imposed on other modes of travels, such as road or rail.

The regulator said the government could risk contravening ICAO’s guidelines if the collection is not ploughed back to the aviation industry or if a similar tax is not imposed on other transportation modes.

“While these ICAO guidelines are not obligatory on a member state, non-compliance with these guidelines arising from the departure levy will move Malaysia away from international good practices in the aviation industry.”

Malaysia is a member of ICAO.

Lim said last week that the levy will be imposed solely on air travel.

Meanwhile, tourism associations said the levy may be counter-productive to Putrajaya’s aim to promote 2020 as Malaysian Tourism Year, especially when other Asean countries are making it cheaper for tourists.

The timing of the levy, they said, is also wrong as the global economy is slowing down and tourists are already bogged down by various taxes and expenses. – April 18, 2019.