Three months after Severe Acute Respiratory Syndrome (Sars) was detected in Southeast Asia, the extent of damage it has wreaked o­n the Malaysian economy is becoming more apparent.

The tourism industry, which took the brunt of the impact, almost immediately has reported ripple effects which are showing up in dismal sales figures for hoteliers and retailers.

Low occupancy

In a report released last Friday, the Rating Agency Malaysia (RAM) reported an average drop of 40 percent in occupancy rates in most hotels compared to the same period a year ago.

"Occupancy was down to the region of 25 percent to 30 percent for most hotels over the month of April, with the exception of The Datai (Langkawi) and Sheraton Imperial (Kuala Lumpur) which still managed to fill up almost half of their rooms," RAM analyst Chan Lai Fong told malaysiakini today.

She noted that, although hotel occupancy rates were low, average room rates for most hotels tracked by the RAM have remained fairly stable.

"The hotels have decided that there is no point lowering the rates since people are not coming in anyway. They have decided that they might as well keep their rates and just take whatever reservations that come their way," she explained.

Chan estimated that hotels are likely to face at least another month of low occupancy since the months between March and June are traditionally low peak periods for tourism activity.

"The Middle Eastern tourists usually come in the summer months between June and July to escape the heat back home. It remains to be seen, however, if they will come back to this region this year," she added.

Intake frozen

Malaysian Association of Hotels president Mohd Ilyas Zainol Abidin said that, at the moment, the industry is hoping that the government would seriously consider tax relief for hoteliers in its stimulus package, due to be unveiled as early as this week.

"We are basically appealing to the government to give some special consideration to the industry. In good times, we contribute a lot to the country in terms of tax (receipts)," he said.

"We represent 310 hotels which have in total 63,000 rooms. Our members employ 80,000 employees. It is a large industry. We don't like to think about this but if we collapse, what will happen to this working population?"

Asked whether hotels have started laying off employees, Mohd Ilyas said such a move has not been initiated but that new intakes have been frozen.

"This is o­ne of the worst crises we have faced and we are o­nly at the beginning (of the situation). If it continues like this for another six months, we will be in a lot of trouble," he said.

Dwindling customers

The decline in tourist numbers has also had a knock-on effect o­n other businesses.

Isetan of Japan managing director Keiichi Kurosawa said the company's two stores in Kuala Lumpur saw a 10 percent decline in the number of customers compared to the same period last year.

"This affects mostly fashion goods such as apparel and fashion accessories. Sales of daily use goods in supermarket is less affected," he said.

Kurosawa said the decrease in tourist-driven sales has been felt not o­nly in Malaysia, but in the company's stores in Singapore as well.

"It is not o­nly tourists from Japan that are fewer but also those from Singapore, Taiwan and China. Our store in Singapore has been affected to a worse degree than in Kuala Lumpur. We are expecting that this month's (figures) to be worse than in April," he added.

Pewter products manufacturer Royal Selangor - whose clientele mainly comprises tourists and corporate buyers - said sales had softened over the past few months.

"We are seeing a decrease in walk-in customers at airports and in our stores. Fewer people are going out now and it is not o­nly pewter sales that are affected but the entire retail sector," said its communications executive Wong Wei Kim.

"However, our sales abroad has not been affected much. It is mainly in Malaysia (that sales have dropped)."

Additional special sales

Malaysian Retail Association (MRA) president Ramli Idris said broad statistics from retail sales have shown a fall by between 10 percent and 60 percent over the past month.

"We have met with government officials to see how we can (boost) consumer confidence. Tourists account for o­nly about 10 percent of total sales and most of it is concentrated around the tourist belt at Bukit Bintang and KLCC. More important (is spending) by locals," he noted.

Ramli said among the MRA proposals to rejuvenate consumer spending is to remove existing controls o­n the frequency of special sales.

"We asked for additional optional sales and the government has agreed to this. So some of our members will be holding sales this month to ease the situation," he said.

'We have also asked the government to help boost consumer confidence by making clear that the Sars situation is not as bad as reported in the press."

Ramli said retailers have also asked for the government for tax breaks to be included in the stimulus package.

"The government has been agreeable to our proposals. The initial feedback that we have received is quite favourable although they have not made a final decision," he said.

Tax relief

Industry players affected by the outbreak are eagerly awaiting the much delayed stimulus package.

To date, the government has urged Malaysians to travel to local destinations to cover the shortfall in foreign tourist arrivals.

Last week, (then Acting Prime Minister) Abdullah Ahmad Badawi had suggested that all government departments hold their seminars and conferences at hotels to boost the beleaguered industry.

However, these measures are still insufficient as domestic tourism activity remains weak outside holiday periods.

According to Malaysian Institute of Economic Research (MIER) research fellow Kevin Chew, an effective stimulus package will have to consider providing tax relief to the sectors most severely affected.

"There will also have to be a larger budget allocation to help out the health ministry," he told malaysiakini .

Chew said, however, that the package is less likely to include personal income tax rebates to boost consumer spending as the government has been seeking to close the budget gap which is entering its sixth year in deficit.

"(This could happen) if the situation allows for it....but the move towards fiscal consolidation goes against the need to cut taxes," he said.

Stable peg

Chew said a longer-term measure would be for the government to consider replacing direct taxes (such as income taxes) with indirect taxes such as value-added taxes (VAT).

"Our suggestion has been for the government to move away from direct taxes to indirect taxes. A comprehensive VAT will help compensate for the shortfall (in income tax receipts)," he noted.

"(Implementation plans have been delayed) because over the last five to six years, Malaysia has been hit by a series of crises."

On the currency peg, Chew said the fixed dollar to ringgit rate is likely to remain stable based o­n favourable economic indicators.

"Our fundamentals are okay and we still maintain a healthy current account surplus. Inflation has also been benign. The US dollar has come down quite a lot since last year so if anything, the bias is towards a undervalued Ringgit," he said.

Last month, the MIER readjusted its growth forecast for Malaysia downwards to 3.7 percent from an earlier projection of 5.7 percent, citing the war in Iraq and the Sars outbreak.

The think-tank's projections were markedly lower than the 4.5 percent growth forecast by Bank Negara.