Penang, a hub for medical tourism in Malaysia, is grappling with new challenges that threaten to dampen its appeal to international patients. A recently introduced 6% service tax on foreign patients, combined with the weakening Indonesian rupiah, could significantly impact the state’s thriving healthcare travel sector, which relies heavily on patients from Indonesia. As policymakers and industry stakeholders assess the fallout, questions remain about whether Penang can maintain its position as a regional leader in affordable, high-quality healthcare.
A Double Blow to Healthcare Travel
Effective July 1, 2025, the Malaysian federal government expanded the scope of its sales and service tax to include a 6% levy on foreign patients seeking private healthcare. This policy shift has raised concerns among Penang’s healthcare providers, who have long marketed the state as a cost-effective destination for medical treatment. Compounding the issue is the depreciation of the Indonesian rupiah, which has fallen from an exchange rate of RM1 to 3,448.28 rupiah in the same period last year to RM1 to 3,844.67 rupiah as of July 18, 2025. For Indonesian patients, who constitute over 90% of Penang’s healthcare travelers, the combined effect of the tax and currency devaluation may make treatment less affordable.
Daniel Gooi, Penang’s health committee chairman, highlighted the potential impact of these developments. “Given the depreciation of the Indonesian currency, many may begin to feel the pinch” he said. “Combined with the 6% service tax effective July 1, this can impact the number of foreign patients seeking private healthcare here.” 
The timing of these challenges is particularly concerning given Penang’s recent success in the sector. According to the Malaysia Healthcare Travel Council (MHTC) report titled “Malaysia Healthcare Travel Industry – 2024 Performance Highlights” released on June 17, 2025, Penang generated over RM1 billion (~US$213 million) in healthcare travel revenue in 2024, contributing significantly to the national total of RM2.72 billion (~US$580 million). The report also confirmed that Indonesians remain the largest group of healthcare travelers to Malaysia, underscoring Penang’s reliance on this demographic.
Penang’s Competitive Edge Under Threat?
Despite the looming slowdown, Penang retains key advantages that have made it a preferred destination for medical tourism. Its proximity to Indonesia, coupled with high standards of care and relatively low costs, continues to attract patients. “Malaysia offers world-class healthcare at affordable prices” Gooi emphasized. “Penang continues to attract foreign patients, especially from Indonesia, due to its high standards and close proximity.”
However, the new tax regime could erode this affordability. Unlike local patients, who are exempt from the levy, foreign patients must now factor in the additional 6% cost when seeking treatment at private facilities. For many Indonesians already strained by their currency’s decline, this added expense might prompt them to explore alternatives in neighboring countries like Thailand or Singapore, where medical tourism is also a significant industry.
Penang’s healthcare travel sector has been a vital economic driver for the state, with nearly half of Malaysia’s foreign healthcare travel revenue attributed to its hospitals and clinics. In the first six months of 2024 alone, Malaysia welcomed 584,468 healthcare travelers, according to MHTC data from November 2024. A downturn in arrivals could have ripple effects on related industries, including hospitality, transport, and retail, which benefit from the influx of medical tourists and their accompanying families.
Policy Proposals and Future Strategies
In response to the new tax, Gooi has proposed innovative solutions to mitigate its impact on Penang’s economy. During a recent meeting with Health Minister Datuk Seri Dr Dzulkefly Ahmad and state health executives, he urged the federal government to consider remitting a portion of the 6% service tax revenue back to states like Penang that have invested heavily in building their healthcare travel sectors. “I urged the ministry to consider channelling funds to states like Penang, which have worked hard to build up their healthcare travel sector” Gooi stated. “Almost half of the country’s foreign healthcare travel revenue comes from Penang.”
Gooi envisions using these funds to enhance public healthcare facilities and infrastructure, which indirectly support the medical tourism ecosystem by improving overall accessibility and convenience for international patients. “It will help keep us as a regional leader if the tax revenue is channelled back to us in some way” he added.
Beyond policy advocacy, Gooi sees opportunities for growth through expanded international connectivity. He highlighted the potential of attracting more patients from markets like China by increasing direct flight options to Penang. “More work needs to be done to promote private healthcare in Penang,” he noted on July 18, 2025. “We will collaborate closely with our private healthcare professionals to find new ways to attract more international patients.”
Regional Context and Economic Implications
Penang’s predicament reflects broader trends in Southeast Asia’s medical tourism landscape. Countries like Thailand and Singapore have long competed with Malaysia for a share of the lucrative market, leveraging advanced facilities, English-speaking staff, and streamlined visa processes for medical travelers. Thailand, for instance, has positioned itself as a wellness and medical hub, offering packages that combine treatment with tourism. Singapore, while more expensive, appeals to high-end patients seeking cutting-edge care. Against this backdrop, Malaysia has carved a niche by balancing quality and affordability—a balance now at risk due to the new tax policy.
The weakening Indonesian rupiah is not a challenge unique to Penang; it affects medical tourism across the region. Indonesian patients, facing a currency that has lost significant value against the Malaysian ringgit over the past year, may opt for domestic providers or delay non-urgent treatments altogether. This trend could have a cascading effect on Penang’s private hospitals, many of which have tailored their services—such as Indonesian-language support and culturally sensitive care—to cater to this demographic.
Economists warn that a sustained drop in medical tourist arrivals could impact Penang’s broader economy. The sector not only generates direct revenue for hospitals but also supports ancillary businesses, from hotels and restaurants to local transport services. A decline in foreign patients could lead to reduced occupancy rates in accommodations near medical facilities, affecting livelihoods in a state where tourism—both medical and leisure—is a cornerstone of economic activity.
Looking Ahead: Adaptation and Resilience
As Penang navigates these headwinds, the state’s ability to adapt will be crucial. Industry stakeholders are already exploring ways to offset the impact of the service tax, such as offering bundled packages that absorb the additional cost or emphasizing value-added services like post-treatment recovery programs. Collaboration between the public and private sectors will be essential to maintain Penang’s reputation as a medical tourism destination.
Gooi remains cautiously optimistic, noting that it is still early to fully assess the tax’s impact since its implementation on July 1, 2025. “While it is still early to assess the impact, since the tax was only recently imposed, we will monitor the situation closely,” he said. His commitment to working with private healthcare providers signals a proactive approach to addressing the challenges ahead.
Penang’s healthcare travel sector stands at a crossroads. The combination of a new tax burden and currency fluctuations poses a real threat to its growth trajectory, yet the state’s established reputation and strategic location offer a foundation for resilience. Whether through policy adjustments, market diversification, or enhanced promotional efforts, Penang must innovate to sustain its edge in a competitive regional market.
As the situation unfolds, the long-term effects of these economic pressures on Penang’s medical tourism industry remain uncertain. What is clear, however, is that the state’s ability to balance affordability with quality care will determine its future as a leading destination for healthcare travelers in Southeast Asia.
