New foreign worker levy needs a relook

TWO days ago, 55 business groups representing employers and big and small enterprises met at Wisma Chinese Chamber to urge the Government to abolish a new measure to raise foreign worker levy by 100% to 300%.

They complained that the magnitude of the increase was too high and warned of the negative implications for businesses if the new levy that was effective from Monday was not withdrawn.

Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi announced on Sunday the increase in the legal foreign worker levy to bring an additional RM2.5bil to the Government’s coffers.

Under the new system, those in the manufacturing and construction sectors will have to pay RM2,500, up from RM1,250; services sector, RM2,500 from RM1,850; plantation and agriculture sectors, RM1,500 from RM590.

With the new levy, almost all economic sectors will be hit by higher cost of doing business.

The most important point brought up by these trade groups in their joint press statement could be this paragraph that carries implications for the whole economy and the people of the country:

“The hike in foreign worker levies would detrimentally impact the cost of doing business, which could lead to business failures and would ultimately be passed on to consumers and result in price increases.”

For export-oriented industries, there is implication on international competitiveness. Industries that cannot absorb the additional cost may either close down or relocate to Vietnam or Cambodia.

Surely in these trying times when the Government is trying to stimulate economic growth, it will be disastrous for the country to see businesses closing shop, industries downsizing, people losing jobs and private spending depressed.

It is noteworthy that the open protest against this new levy system includes many prominent trade groups such as the Associated Chinese Chamber of Commerce and Industry, Federation of Malaysian Manufacturers, Malay Chamber of Commerce Malaysia, Malaysian Associated Indian Chamber of Commerce and Industry, Malaysian Employers Federation, SME Association of Malaysia and groups representing their respective economic activities.

In other words, almost the whole business community in Malaysia is up in arms against this new government policy. This phenomenon is quite unprecedented, given that businessmen are normally ultra-cautious in their actions so that their interests and profits will not be undermined.

But with this united voice from respected groups that can move or stifle the economy, it may be advisable for the Government to relook its new levy policy and engage with the business community for a more palatable solution.

Interestingly, even Deputy Finance Minister Datuk Chua Tee Yong was shocked by the magnitude of the increase in levy, according to Nanyang Siang Pau.

He told the Chinese media that the Home Ministry should explain why the new levy was so high.

The 55 trade groups claimed that the Government’s announcement was made “without any prior notice or consultation with stakeholders”.

To be fair, in its bid to reduce Malaysia’s reliance on foreign labour, the Government did warn the business community that it would be much more expensive to hire foreign workers.

In mid-December, Minister in the Prime Minister’s Department Datuk Paul Low said it would cost at least 30% more to hire foreign workers, starting early 2016, if the Government went ahead with a plan to wean certain industries off their ­reliance on foreign labour.

One way to achieve this objective was to make it much more expensive to recruit foreign workers so that businesses would then employ locals or seek other means to reduce costs.

But as the Government has always flip-flopped in its foreign labour policy decisions, few have taken Lau’s cautionary statement seriously.

To be frank, while many ordinary Malaysians hope to see fewer foreign workers in the country due to the social issues they have created, the Government might have overlooked the timing for the implementation of the new levy.

The current economic slowdown is already straining the operations of many businesses, which have already been hit by the imposition of the Goods and Services Tax (GST), plunge in the ringgit, local political situation and weak consumer sentiment.

And when the new minimum wage policy comes into force in June, businesses will face another round of increase in the cost of doing business.

In this regard, the business community has rightly pointed out that the fundamental issue for Malaysia now is the need for the better management of 2.2 million legal foreign workers and the elimination of four to six million illegal foreign workers.

The application process to recruit foreign workers is so expensive, convoluted and uncertain, that some desperate employers are driven to employing illegal foreign workers in order to survive. This has resulted in the surge in illegals in Malaysia.

It is obvious the current employment process needs to be streamlined. Do we need to break up a one-window process into many processes to accommodate monopolistic outsourced entities, which actually impede and add unwarranted costs?

From the strongly-worded lengthy statement of the 55 entities, it is clear that the business community has harboured a lot of grudges against the Government on the foreign worker issue. The untimely new levy announcement has provided them the opportunity to vent their frustrations.

For a country that claims to be business-friendly, Malaysia needs to heed the call by its business community for consultations on policies that may carry negative implications, particularly during these difficult times when domestic and international issues can alter the dynamics of local politics and business.