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Malaysian businesses warn of 'economic fire' on labour cost surge

[KUALA LUMPUR] Malaysian manufacturers warned the government of an "insurmountable economic fire" that threatens businesses and jobs after what it said was a sudden decision by authorities to double foreign worker levies.

The government will increase the annual levy it charges employers to hire overseas labour for manufacturing, construction and services sectors to RM2,500 (US$601) from RM1,250 effective Feb 1, Deputy Prime Minister Zahid Hamidi said Sunday. In the plantations and agriculture industries, the rate will be RM1,500, he said. The new measures will increase government revenue by RM2.5 billion, Zahid said.

Prime Minister Najib Razak's administration is seeking new measures to boost its coffers after a plunge in oil meant spending plans had to be reviewed for a second year to keep fiscal deficit targets in check. Manufacturers have demanded structural changes to policies on human resource and foreign workers that will provide clarity and consistency for the sector as the government tries to reduce reliance on overseas labour.

"The government's sudden decision to double levy rate for the manufacturing sector with immediate effect is unacceptable," the Federation of Malaysian Manufacturers said in a statement Monday. "Business sustainability is at stake. Jobs are also at stake, even for local workers when businesses find great difficulty in sustaining their operations."

Malaysia should look at labour market demands more closely when determining foreign worker inflows as its current approval system doesn't sufficiently reflect the needs of industries, the World Bank said in December. It advised the government to improve its existing evidence-based system for identifying labour shortages in the economy and change its levy structure to one that could keep up with varying market conditions.

While businesses are aware of the need to reduce dependency on foreign workers, any changes should be announced in advance and be gradual to allow companies enough time to adjust, the manufacturing group said. 

"Changes, and especially hefty changes with significant impact on business costs, should not be made overnight," it said. The government needs to study business sustainability in totality, and not in isolation of issue by issue, it said. "All issues put together become an insurmountable economic fire which could overwhelm and consume businesses, employees and suppliers throughout out the supply chain."

BLOOMBERG