EPF contributions for foreign workers to boost economy, says academic

KUCHING: Mandating Employees Provident Fund (EPF) contributions for foreign workers in Malaysia is expected to significantly impact the economy, with increased national savings being one of the primary outcomes.

According to lecturer Nivakan Sritharan from the Faculty of Business, Design and Arts at the Swinburne University of Technology Sarawak Campus, this initiative is set to increase the national capital pool, contributing to long-term economic sustainability and reducing Malaysia’s reliance on external financial resources.

“Despite potential fluctuations in the labour market, this increase in domestic savings will strengthen the foundation for future development plans and contribute to greater economic resilience,” he said when contacted by New Sarawak Tribune.

He added that the introduction of mandatory EPF contributions will also transform industries that heavily depend on foreign labour, such as manufacturing and construction.

He noted that this policy would lead to the formalisation of businesses, ensuring better legal protections for workers and aligning wages with Malaysian regulations.

As a result, he said, tax compliance within these industries is likely to improve, potentially narrowing the tax gap.

Moreover, he added, the policy could also position Malaysia as a more attractive destination for foreign workers by providing greater assurances to labour-sending countries.

“These measures could help ensure that foreign workers are protected under Malaysian labour laws and are not subjected to wage theft, thus enhancing recruitment efforts,” he said.

However, Nivakan said that businesses may face increased labour costs due to the mandatory employer contributions to the EPF, a financial burden that small and medium-sized enterprises (SMEs) could find challenging to bear.

“Some companies might explore alternatives such as automation to replace manual labour, especially if the local labour market cannot meet demand.

“This shift is becoming increasingly plausible, given that Malaysia’s 2025 budget offers substantial incentives for businesses to invest in automation and digital transformation,” he said.

Meanwhile, touching on the intergenerational transfer of wealth mechanism through EPF, he opined that this policy may encourage individuals to view it as a comprehensive retirement plan.

“It can be perceived as a long-term investment that provides security for the future. Additionally, wealth transfers can support the retiree’s family, whether through education, housing, or entrepreneurial ventures.

“This approach can alleviate the financial burden on retirees who might otherwise feel obligated to provide ongoing financial assistance to their children or grandchildren,” he said.