FOLLOWING Budget 2025, the government has proposed that the mandatory Employees Provident Fund (EPF) contribution for foreign workers be decreased to 2% of wages (from 12%).
“This is a positive for the sector, but the implementation date has yet to be announced. While this would have a negative impact on earnings, our estimates indicate that the extent would not be substantial,” said RHB in the Sector News Flash.
Yesterday, the government proposed a fixed mandatory 2% EPF contribution for foreign workers, which is lower than the initial proposed figure of 12%.
There are no details yet on the implementation timeline, which is expected to be discussed at the cabinet level this week, although RHB believes that this will be implemented in phases.
“We also note that there was no segregation made between foreign workers under new contracts or existing ones,” said RHB.
Assuming the latest 2% EPF contribution is for both existing and new contracts, RHB is positive on this development as the rate will be lower than the statutory rates for both employees and employers, that is 12%.
As such, foreign workers would be taking home MYR1,666 (2% comes up to MYR34 per month) based on the revised MYR1,700 minimum wage.
Additionally, plantation companies would also need to pay an additional cost of at least MYR34 per month for each worker, assuming a minimum wage of MYR1,700.
Based on the MYR1,700/month minimum wage, this additional cost should have a minimal impact on the companies under coverage, that is -0.3% to 2% of earnings annually.
“However, we highlight that this would be a best-case scenario, as harvesters generally are paid sums that are much more than the minimum wage, which means the impact on earnings would be slightly larger,” said RHB.
In addition, if the employer has to absorb the employees portion by raising wages to include the employees’ 2% contribution, the impact could then be even larger, potentially at 4-8% per annum.
“We believe the proposed contribution would bring some relief to planters as it is much lower than the previously mentioned 12% contribution,” said RHB.
While there would be a slight negative impact on earnings, the impact is not that significant. RHB made no change to their earnings estimates for now.
Their top picks remain a mix of pure planters and situational plays –JPG, SOP, SDG, BAL and LSIP. —Feb 5, 2025
Main image: The Malaysian Reserve