A new Malaysian annual levy of 2,500 ringgits (or £418) will raise costs of foreign construction workers by 11% to 25% per worker, according to a study by CIMB Equities Research.
The company said the increases in the levy on foreign construction, manufacturing and service sector workers would hit the construction, plantation and the industrial sectors hardest as these sectors are most heavily dependent on foreign workers.The raise, which is intended to boost government revenue by 2.5bn ringgits or £418,797, effectively doubles the levy on foreign construction workers.
CIMB said in the construction sector labour costs form roughly 20-25% of the total cost and impact on the bottom line would depend on whether contracts could be renegotiated."
Guidance from contractors is that there should be an element of cost pass through, but it would depend on several factors. "For contracts that are in progress/outstanding, terms could be renegotiated through additional claims with the possibility of settlement during the final certification of works," CIMB said.
However the levy on foreign plantation workers sector has risen by 154%. “This is a negative as the sector is heavily dependent on foreign workers, which make up 78% of the industry’s workforce,” said CIMB.
As in the past plantation companies had absorbed levy charges earnings in the sector could be cut by 1-8%. The report also said Malaysia’s rubber glove sector could be affected as the foreign workers levy rate for the manufacturing sector rose by 100%. The world’s top four makers of latex gloves – widely used in the medical sector – are based in Malaysia.
“Although the majority of the local glove companies employ a significant number of foreign workers for their production lines, we think the impact will be minimal as we expect the cost hike to be shared by the foreign workers,” said CIMB.
“We estimate this could reduce 2016 sector profit by about 1-2%.” Sectors like education, telco, aviation, gaming, healthcare, auto, banking, media, oil & gas, brewing and tobacco are not expected to be affected by the levy hike.