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Manufacturers ask govt to extend wage subsidy to all levels of employees

FMM In The News:  THE EDGE MARKETS, KUALA LUMPUR, April 20, 2020 - Local manufacturers want the government to extend the Wage Subsidy Programme (WSP) to all employees irrespective of their wage level, according to a survey conducted by the Federation of Malaysian Manufacturers (FMM) from April 6-10.

The 419 respondents, comprising 89.5% of manufacturing and manufacturing-related and support services companies, urged the government to remove sales/revenue reduction conditions and extend the wage subsidy to at least six months.

FMM president Tan Sri Soh Thian Lai, in a statement, said manufacturers were facing tremendous strain on their revenue and ability to sustain business amidst the Covid-19 pandemic and Movement Control Order (MCO). 

“More than 50 per cent of the respondents said revenue had dropped by more than 50 per cent. This has led to the inability of businesses to sustain their operations beyond three months if the MCO continues to be extended and conditions do not improve.

“Forty-four per cent of the respondents indicated that they would only be able to sustain their business with their current workforce for three months, while 34.1 per cent, for only one month,” he said.

He said the government acknowledged the severe constraints faced by employers, leading it to announce on April 6, 2020 that it would allow employers and employees to negotiate on the terms of employment, including cost-cutting measures such as pay cuts and unpaid leave.

“However, it must be recognised that this negotiation process with employees or employee representatives would not be an easy task for most employers,” said Soh.

According to the survey, 74% of the respondents said the wage subsidy was inadequate to retain employees in the next three to six months, without any pay cuts or retrenchment.

“Seventy-four per cent replied that the wage subsidy should cover all employees irrespective of wage level with some suggesting that the ceiling be set at RM8,000 instead of the RM4,000 currently,” said Soh.

He said 57 per cent of the respondents wanted the subsidy to be more than 50 per cent of wages, while 51 per cent felt the wage subsidy period was too short and should be for at least six months, to enable employers to wade through the impact and aftermath of Covid-19 and the MCO.

“Given the inability of businesses to sustain with the current workforce, some of the likely cost-cutting measures that employers would undertake in the next three to six months, in order to preserve employment include freezing headcount (67 per cent) and instituting unpaid leave (59 per cent),” he said.

Fifty-nine per cent might undertake removal of some non-contractual allowances and benefits, forced annual leave (59%), reduction of working days per week (39%), reduction in some benefits agreed in the collective agreement for the unionised companies (34%), and reduction on working hours per day (29%).

The survey also found that 62% of unionised companies were unable to negotiate and implement cost-cutting measures such as reduction of working days or hours to save jobs, resulting in 48% having to resort to retrenchments or layoffs.

“Sixty-three per cent indicated that they may have to resort to cost-cutting measures with 47 per cent having to do so within the next three to six months. 

“Majority (78.7 per cent) of companies would have to lay off/retrench up to 30 per cent of employees, with 27 per cent indicating that they would have to lay off between 21-30 per cent of employees, followed by 22 per cent having to lay off between 11-20 per cent of employees,” Soh said.

He said the respondents asked the government to consider allowing factories including in non-essential products to resume operations albeit under strict MCO guidelines with a minimal or at least 50% workforce to cater not only for local demand but export market as well.

The respondents expect a complete exemption or reduction of the Employees Provident Fund (EPF) contribution from April to December and a waiver of income tax for Year of Assessment 2020 for all corporations irrespective of size.

They suggested that personal income tax be fixed at 10% on the maximum scale; monthly tax deduction be suspended for a period of six months; and full suspension of foreign workers levy for a one-year period.

On financial assistance, the respondents preferred that banks to not compound interest but rather waive or reduce the interest during the moratorium period and proposed a special soft loan scheme of RM5 billion with a two per cent interest rate.

The soft loan would presumably allow affected companies to cover fixed capital payments such as rents and utilities, as well as administrative payments including salaries. 

On overhead costs involving utility bills, the respondents recommend that industrial power users irrespective of kilowatt usage/month be given at least a 15% discount for the next six months.

In addition, they suggested that the maximum demand charge be removed for medium and high-voltage industrial customers such as those in the cement, iron and steel, and petroleum and chemicals processing industries. 

The respondents also favoured a reduction of 35% in natural gas tariffs until end of 2020 and removal of the “Take or Pay” penalty clause imposed on customers, given the current impact on businesses, as well as the overall drop in oil prices.

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