Malaysian Firms Bemoan New Levy for Foreign Workers

Businesses in Malaysia that hire millions of foreign workers are fuming over a new government policy requiring them to pay an annual tax for every non-Malaysian on their payrolls.

Until the rule took effect on Jan. 1, each foreigner among a migrant workforce of at least 2 million documented people was required to pay an annual levy that took a bite of 15 percent to 20 percent out of his or her annual earnings.

Business leaders argue that the policy will channel money away from the national economy because foreign workers will have more money to send home through remittances. Industry people say this will also increase their operating costs and force them to pass those on to the consumer.

One hundred and fifty-nine local business associations have sent a letter to Prime Minister Najib Razak complaining about the new policy, said Shamsuddin Bardan, executive director of the Malaysian Employers Federation (MEF). The prime minister’s office has yet to comment on the letter sent last week.

“We call for the government to repeal the move because of the serious impact on the local economy and the increased cost of doing business,” Shamsuddin told BenarNews.

The Employer Mandatory Commitment (EMC), as the levy is known, was to be implemented in February 2016, but that was delayed until the first day of 2017 because of complaints from employers.

The EMC requires businesses to bear the annual levy for each foreign worker in their employ – 1,850 ringgit (U.S. $413) per worker in category one (manufacturing, construction and service industries) and 640 ringgit ($143) per worker in category two (plantation and agriculture). The initial plan called for employers to pay a higher levy – 2,500 ringgit ($558) per category one worker and 1,500 ringgit ($335) per category two worker – but it was scuttled in March 2016.

Tens of thousands people from Bangladesh, Myanmar and other Asian countries have migrated to relatively more prosperous Malaysia in the hopes of scratching out a living by often taking on grueling and even dangerous menial jobs.

Bangladeshi worker Mohammad Rakib, 44, expressed delight at the new policy, saying he would able to send home more money that he would have otherwise lost in paying off the old levy.

“This will definitely help with my eldest daughter’s higher education,” Rakib, a petrol pump attendant who’s been working in Malaysia for five years, told BenarNews.

A deterrent for trafficking: government

Home Minister Ahmad Zahid Hamidi said the new policy would require employers to ensure that their hired foreign workers did not abscond, change sectors, overstay their visits or become illegal immigrants.

“There were instances where foreign workers ran away and the employers washed their hands of the matter and left it to the Immigration Department, police and other agencies to locate and send back the workers,” Zahid told state news agency Bernama. “Such incidents gave room to irresponsible people to indulge in human trafficking.”

Malaysia’s foreign legal workforce is a little more than 2 million but officials estimate that more than 1 million more are undocumented workers.

Business groups are pushing back, including the Malaysian Rubber Glove Manufacturers Association (MARGMA), which argues that the policy will force the industry to pay up to 90 million ringgit ($20 million) a year to cover the levy alone.

“The move would also result in foreign workers sending back up to 5 billion ringgit ($1.1 billion) a year back to their home countries, causing a cash drain in the country,” MARGMA President Denis Low Jau Foo said.

A political party, the Malaysian Chinese Association (MCA), is among those that oppose the idea of transferring the burden of the levy onto employers.

“The policy would see foreign workers earning about 15 percent more, and this would cause locals to also ask for higher salaries – further burdening businesses which are already hit hard by the economic slowdown,” said Chris Lee Ching Yong, deputy chairman of the party’s youth division.

Billions in revenue

Zahid, who is also deputy prime minister, said the commitment would be in effect from the job application stage, right up until foreign workers are sent back to their countries.

The government is expected to gain 2.5 billion ringgit ($558 million) from the levy each year under the new rule, Zahid added.

In recent years, Malaysia was marred by allegations that foreign workers were not paid a minimum wage, their movements were restricted and employers kept their passports.

The change is seen as an attempt to improve Malaysia’s reputation as a human trafficking hub in the region.

In 2015, the U.S. Department of State bumped Malaysia to the Tier 2 Watch List from its Tier 3 blacklist of countries that failed to do enough to combat human trafficking. Critics said Malaysia was promoted as an incentive for joining the Trans-Pacific Partnership (TPP) trade deal being negotiated then by President Obama. For 2016, Malaysia remains on the Tier 2 Watch List.

Some welcome new rule

Not all industries see the change as a negative.

Mohamad Audong, the head of the Malayan Agricultural Producers Association (MAPA), said that the move would not affect it because plantation companies that are members have already been paying levies for their workers.

“Although we were given the option to deduct the levy from foreign workers’ pay, we don’t do that,” he said. “When the government implemented minimum wages in 2012, we were given the option to deduct workers’ salary for levy payment. At that time, all employers deducted, except plantations.”

The minimum monthly wage for all workers, including those of foreign origin, is 1,000 ringgit ($223) in Peninsular Malaysia and 920 ringgit ($205) for those working in the Borneo island states of Sabah and Sarawak, effective July 1, 2016.