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Government Urged To Rescind New Ruling

FMM In The News: The Edge Market, January 4, 2017

KUALA LUMPUR: Employers, who were caught off guard by the sudden ruling requiring them to pay for foreign workers’ levy, are calling on the government to withdraw its move, saying it will severely hurt businesses across many sectors.


They also want adialogue with the government.


Starting this month, employers will pay the levy on foreign workers under the new Employer Mandatory Commitment (EMC). They are no longer allowed to make deductions from workers’ salaries for levy payment.


Describing it as a shock to companies in the construction sector, Master Builders Association Malaysia president Foo Chek Lee said they were not prepared for the implementation of the EMC.


“It impacts the construction works that are still ongoing, which have no budget allocation for the EMC,” he told The Edge Financial Daily.


With an estimated 900,000 foreign workers in the construction sector, Foo estimates that the EMC will add an additional 2% on average in operation cost across the industry, which may pass the cost increases along to consumers.


Foo is also of the view that such far-reaching policy should only be implemented after the government has a thorough discussion with representatives from relevant industries, instead of imposing cost-related policies out of the blue.


“It is difficult for businesses as we are not sure about government decisions. We have just adjusted to the goods and services tax (GST) implementation and there were the revised foreign worker levies beginning [in] March last year.


“We appeal to the government to reconsider the move. It is not yet a good time to implement,” hesaid.


Foo also does notthink that the EMC will reduce issues of workers fleeing, overstaying or working illegally in other sectors, as employers have nothing to hold on to their employees.


Malaysian Iron and Steel Industry Federation president Datuk Soh Thian Lai said its members hoped that the government would rescind the implementation of the EMC, sayingthe move was “hasty”.


“We hope that the government will conduct a stakeholders’ consultation process on this very significant matter,” said Soh in a statement yesterday.


He added that thenew ruling was implemented without any dialogue or due consultation with businesses, noting that it would have immediate cost and operational impact on manufacturers, including iron and steel manufacturers.

“While we appreciate the government’s objective to reduce the number of cases of workers fleeing, working illegally in other sectors, overstaying, etc, this monumental task requires shared responsibility and collective efforts of all stakeholders and certainly not employers alone,” he said.


Soh pointed outthat the Malaysian iron and steel industry had been going through a challenging business environment over the last couple of years.


“There is this worrisome China factor to contend with. The implementation of [the] GST, depreciation of the ringgit, withdrawal of subsidies in utilities and global economic down turn have all contributed to the escalation of cost of doing business.


“Passing on incremental cost to consumers would create inflationary pressure on consumers or further reduce the volume of business. It would be dreadful that instead of priding ourselves as a high-income nation, we would emerge in reality as avery-high-cost producer nation with all its adverse effects on the economy,” he added.


Federation of Malaysian Manufacturers (FMM) president Tan Sri Dr Lim Wee Chai also wants the home ministry to hold an immediate dialogue with the manufacturing industry on the new ruling.


“FMM has always said when there are changes to any policy which would result in immediate cost impact on employers it must be done with consultation, pre-announced and gradually implemented with a grace period before it comes into force,” Lim, who is also chairman of Top Glove Corp Bhd, told The Edge Financial Daily.


“The levy payment will cost Malaysia [reportedly RM5 billion] per year andthis amount will be transferred out from Malaysia. With the ringgit weakening,the [additional] cost will be an additional burden and pressure on doing business in Malaysia,” he said.


In a note yesterday, CIMB Research estimated that the new policy would lead the local glove industry, which employs up to 42,000 foreign workers, to a higher cost of RM77.7 million.


However, it expected glove makers to eventually pass on these costs to customers.


CIMB Research viewed that earnings of Top Glove, which has the highest number of foreign workforce among its peers at an estimated 7,000 workers, would be the most negatively affected.


“However, we believe the recent sharp appreciation of [the] US dollar will be sufficient to offset the impact from companies needing to be responsible for levy payment for their foreign labour,” the research firm added.


Another analyst estimated that the cost increase from the EMC implementation would roughly hit rubber glove players by about RM4 million to RM5 milion or about 2% of the players’ earnings.

“This would increase the cost per 1,000 gloves byless than 1%. So, we think that it is unlikely that the players would increase prices solely due to this,” she said.


Meanwhile, analysts see companies in the food and beverage (F&B) and plantation industries spared from the new policy as the cost of employing foreign workers makes up a small portion of their operating costs.


“Raw material costs make up the bulk of F&B operations. On top of that, F&B companies have been gradually reducing their labour cost through business models such asself-service,” an analyst said.


A plantation analyst opined that the new ruling would not have a major impact on the plantation sector despite having more than 50% of its workforce covered by foreign workers.


“This is because the plantation and agriculture sector pays only RM640 in terms of foreign workers’ levy, which is about a third compared with RM1,850 imposed on the manufacturing, construction and services sectors,” he said.


Meanwhile, Bernama has reported that the Malaysian Employers Federation (MEF) had urged Prime Minister Datuk Seri Najib Razak to intervene in the foreign workers’ levy issue.


MEF executive director Datuk Shamsuddin Bardan said: “This policy is a surprise and we do notsee it benefiting the economy. It is not business-friendly and the announcement was made within a day, without any engagement with industry players and [a] grace period [given].


“We do not agree with this policy because the cost will not only impact us, the employers, but consumers as well,” he said after a joint meeting with 159 industry players yesterday.


SME Association of Malaysia national president Datuk Michael Kang Hua Keong said the association opposed the decision because employers would face more risk of losing legal foreign workers.


“As this willincur additional cost for businesses to employ legal foreign workers, more illegal ones will start to come in.


“Thus, the aim to manage foreign workers better through the move taken will not achieve its objective,” said Kang.

He said industry players wanted the prime minister to look into the matter urgently and revert to the previous system.


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