Let’s hear the full levy story

  • Business
  • Saturday, 06 Feb 2016

Management of foreign workers is complex. Raising the rates is just one facet

THESE days, there’s no quicker way to rile a businessman than to use that four-letter word — levy. Ask any leader in commerce and industry about the recent big increase in the levy for foreign workers, and you’ll see that there’s little enthusiasm, if any, for that move.

In fact, rarely has the Malaysian business community been this immediate, united and vocal in responding to an unpopular rule change. So much so that there’s a possibility of a review of the hike.

According to Minister in the Prime Minister’s Department Datuk Seri Dr Wee Ka Siong, the Cabinet had discussed on Wednesday the stiff resistance to the levy increase.

As a result, Prime Minister Datuk Seri Najib Tun Razak has asked his deputy Datuk Seri Dr Ahmad Zahid Hamidi to meet with industry bodies and business chambers as soon as possible.

This suggests that the Government is likely to again revise the levy rates instead of sticking to the hikes of between 36% and 266%, which took effect on Feb 1.

If there’s indeed a rethink on how much the levy should be, the businessmen will surely be grateful that the authorities are not deaf to their pleas. But the slashing of the rates shouldn’t be the sole focus.

It’s equally important that there’s proper articulation of why the Government wants the foreign workers in Malaysia to pay a higher levy now.

If people are to accept higher costs — which is what the new levy rates will probably lead to — they have to first believe that the change, despite the short-term pain, will eventually benefit them.

This is a time for a consistent and solid narrative.

To start with, we need to be clear about the purpose of the levy. Is it merely another revenue source for the Government? Or does it also serve as a lever that can be worked to achieve non-fiscal policy goals? If so, what are these objectives?

Back in January 2013, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah issued an insightful press statement on the levy.

When it was introduced in 1992, he explained, the levy was paid by the foreign employees because like Malaysian citizens, they used public services and facilities provided by the Government, such as clinics and roads. In that sense, the levy was a tax that helped fund Government expenditure.

The obligation to bear the levy was transferred to the employers in April 2009, with the aim of controlling the increase of foreign employees in the country at that time.

The pendulum swung the other way again in January 2013, with the implementation of the minimum wage policy and improvements in the management of foreign workers.

“In a move to reduce the burden of hiring costs for employers, in particular, small and medium industries, the Cabinet has agreed to reinstate the 1992 ruling by passing the burden of levy now back on foreign employees instead of their employers,” said Ahmad Husni in the statement.

He argued that the move would not trouble the foreign employees because the levy payable was only between RM34.16 to RM154.16 a month, compared with the average increment of between RM300 to RM500 a month once the minimum wage system started.

But this was the situation three years ago. A lot has happened since then, such as the plunge in oil prices, which has compelled the Government to tighten its strategies for revenue and spending.

And there have been signals that the policy on foreign workers is shifting. Last December, Minister in the Prime Minister’s Department Datuk Paul Low indicated that the Government was looking at loosening certain industries’ reliance on foreign labour.

One possible measure was to push up the cost of hiring foreign workers by at least 30%, starting early 2016. This way, employers will be prodded into employing more locals or using technology to lower costs.

On Jan 28, when presenting the revised Budget 2016, Najib said one of the 11 key measures was the streamlining of the management of the foreign workers system, which involved clustering the levy into two categories only.

He added: “In addition, the Government has agreed to implement the Rehiring Programme to provide opportunities for Foreign Workers Without Permits (PATI) in the country to be given valid work permits.

The implementation of this programme is to fulfil industry demand as well as to enable the Government to ascertain the number of PATI in the country for the purpose of security monitoring.”

And then came Dr Ahmad Zahid’s announcement on Jan 31 on the new levy rates, which he said would give the country extra income of RM2.5bil. He also explained that the new rates were needed because foreign workers were also enjoying various benefits such as subsidised prices for food and other necessities, which were only meant for Malaysians.

“They are enjoying our good infrastructure too, but we are also acknowledging the vital roles they play in our nation-building and to our economy,” he added.

On Feb 3, he said the increase in the levy should be seen as a positive move to reduce dependence on foreign workers.

It appears that the levy hike is meant to achieve multiple objectives.

That’s a big job, and the lack of details and cohesion doesn’t offer any relief for the sting of having to pay so much more to get foreign workers.

Most people agree that Malaysia will be better off if we can figure out how to fulfil our potential without relying extensively on foreign labour. But at this point, a sudden and huge increase in the levy for foreign workers doesn’t at all resemble a solution to a complex issue.

Executive editor Errol Oh is curious about the difference between a levy and a tax.

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