Foreign worker levy hike

Nobody likes having to pay more for anything. Especially if the hike is large and abrupt, and with little explanation offered. Is it any wonder then that there has been much disapproval and anxiety over the government’s decision to immediately raise the levy for foreign workers by as much as 266 per cent?

Given that there are more than two million registered foreign workers in Malaysia in major sectors such as manufacturing, construction, plantation, agriculture and services, this change is likely to have a broad impact.

To be fair, the revision is not exactly a bolt from the blue. In mid-December, Minister in the Prime Minister’s Department Paul Low said it would cost at least 30 per cent more to hire foreign workers, starting early 2016, if the government went ahead with a proposed plan to wean certain industries off their reliance on foreign labour.

According to Low, one way to achieve this objective was to make it more expensive to recruit foreign workers so that businesses would then employ locals or seek other means to reduce costs. For example, he explained, when the levy for foreign workers in the manufacturing sector was pushed up, the hope was that the employers would instead use more machinery and automation.

And when Prime Minister Najib Razak presented the revised Budget 2016 on January 28, one of the 11 “restructured and recalibrated measures to ensure the economy and financial position remain on the right trajectory” was the streamlining of the management of the foreign workers system. This, he added, involved clustering the levy into two categories only.

So the government has, in fact, signalled its intention to tweak the foreign worker levy. But clearly, few were prepared for the announcement on January 31 by Deputy Prime Minister Dr Ahmad Zahid Hamidi.

Effective the following day, he said, there would be only two categories of foreign workers – those in the manufacturing, construction and service sectors, and those in plantation and agriculture. The levy for the first group would be 2,500 ringgit (US$590), while that for the second group is 1,500 ringgit. Previously, the levy was between 410 ringgit and 1,850 ringgit, depending on the type of industry and the location.

Ahmad Zahid said the new levy rates would bring in extra government revenue of 2.5 billion ringgit. This is certainly helpful amid the depressed oil prices and a challenging global economic environment. Tough times require tough measures, but there are ways to ease the pain, maximise acceptance and ensure a win-win situation in the long run.

Businesses need to plan ahead. That is why they generally dislike sudden policy changes and uncertainty in operating conditions. At the same time, consumers need time to appreciate how things will be different if businesses decide to cut down on the hiring of foreign workers.

In addition, the government ought to fully engage with stakeholders on its overall strategy for managing foreign workers in Malaysia, including the large number of those without permits.

There is a lot of education and consultation to be done, and it is wise that the new levy rates be deferred until we are all on the same page on what is best for the nation’s development.

If progress means paying more for foreign workers, so be it, but that works only if we truly understand the big picture.