Minimal impact expected from levy increase in gloves sector
KUALA LUMPUR: Analysts believe that the proposed hike in the gloves sector’s foreign workers levy will have minimal impact on earnings as the cost of the higher levy will be shared with the workers or passed on completely.
In a recent report, AllianceDBS Research Sdn Bhd (AllianceDBS Research) highlighted that glove makers tend to have a large pool of foreign workers in the manufacturing plants, which can account for up to 70 per cent of the total workforce.
“They have been passing the existing levy (RM1,250 per year) to the workers. We expect minimal impact on earnings as the cost of the higher levy will be shared with the workers or passed on completely.
“If absorbed, the impact of the hike in levy will be RM0.10 to RM0.25 per 1,000 gloves. This is turn will impact the financial year 2016 to 2017 (FY16 to FY17) earnings by one to two per cent.
“Glove makers should be able to manage the higher cost with better automation. With aggressive plans to increase automation, fewer workers would be needed in the manufacturing plants,” the research team explained.
Moving forward, it said glove companies are looking at cutting their work force to enhance efficiency. This would mitigate the higher cost from the hike in levy. Of note, the government had proposed an increase in the foreign workers levy from RM1,250 to RM2,500 per pax per annum for those in the manufacturing, construction and services sectors effective February 2016.
They have been passing the existing levy (RM1,250 per year) to the workers. We expect minimal impact on earnings as the cost of the higher levy will be shared with the workers or passed on completely.
This is in line with the government’s plans to restructure the foreign workers system; the higher levy is to account for foreign workers enjoying various benefits such as subsidised prices for food and other necessities meant only for Malaysians.
However, AllianceDBS Research noted that the government had also decided to put the hike on hold pending discussions with representatives from the Malaysian Employers Federation, manufacturers, guild associations and non-government organisations.
This was due to the strong objections by several trade groups.
AllianceDBS Research