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Nikkei Markets

Malaysia back-pedals on foreign workers' levy move

Asks local employers to pay full fee; companies flag move to raise business cost

Malaysian construction companies have relied on migrant labor force to build roads and ports, and erect glitzy commercial towers and sprawling residences in Southeast Asia’s third-largest economy.    © Kyodo

KUALA LUMPUR (Nikkei Markets) -- Malaysia Tuesday retreated from a previous move to ease charges that local companies pay for employing foreigners, saying employers will have to solely bear the levy as is the current practice.

The Malaysian employers will have to pay the entire 10,000 ringgit ($2418.6) annually as levy on foreign workers through a three-year extension, sharply higher than the 1,850 ringgit they have to pay annually for the first 10 years for each foreign staff, Finance Minister Lim Guan Eng said at a news conference.

The higher charges applicable to those foreigners working in the three-year extension period will come into effect from October, Lim said.

The move marks a departure from the government's previous stance when Lim said 80% of the higher annual charges through the extension period will be borne by the workers and the remainder 20% by the employer.

"At first the government wanted to reduce the employers' burden by suggesting 20% of the extension levy will be paid by them and 80% by the employee," Lim said. "But today I want to announce that the government has decided to go back to original rules where employer will pay the 10,000 ringgit levy per year for three years."

Malaysia has long served as a magnet for foreign labor from the region as well as from South Asian countries who flocked to take up low-paying jobs that the local people don't want. For decades, foreigners have toiled the oil palm and rubber plantations, and Malaysian construction companies have relied on migrant labour force to build roads and ports, and erect glitzy commercial towers and sprawling residences in Southeast Asia's third-largest economy. Rapid industrialization since the 1980s sparked a rush of foreign workers to sweat on large export-reliant electronics manufacturing bases and in the services sector.

Lim's comments come a day after he said the Alliance of Hope coalition government aims to collect about one billion ringgit ($241.9 million) over three years in levies on foreign workers.

While corporates criticized the move, saying the higher charges will push up cost of doing business, analysts doubted its rationale.

"The policy is not business-friendly," said Chen Kooi Chiew, executive chairman at property developer MKH Bhd. He has yet to assess how bad the impact will be on the property business, Chen said, adding that he is awaiting feedback from the contractors.

The 10,000 ringgit levy through the three-year extension is "too costly" for businesses, said Lee Heng Guie, executive director at think-tank Socio-Economic Research Center. "Why they (skilled labour) have to be penalized for this. What's so special about this group?"

The government should keep the levy at reasonable rate, Lee said. "It would be too costly for companies if they are required to pay the levy. There should be no change in levy structure."

--Sarah Nadlin Rohim and Gho Chee Yuan

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