Malaysia’s returning expert programme driving out more talent, economist says

By Opalyn Mok
The Malay Mail Online
June 22, 2014

GEORGE TOWN, June 22 — Malaysia’s returning expert programme (REP) is not only ineffective but also indirectly encourages more high-skilled emigration, the head of a Penang think tank said, as the government seeks to woo talent home.

Dr Lim Kim Hwa, Penang Institute’s chief executive officer and head of economics said the REP is simply not attractive enough to entice highly-skilled Malaysian workers based overseas back to the country.

“Our research shows that the REP can only lessen the income loss that the emigrant has to sacrifice by coming back to Malaysia so it is not strong enough to lure them back,” he told a forum here titled “Brain drain: Who gains? Who sacrifices?”

Lim was presenting the results of his research on the causes, effects and fiscal impacts on brain drain.

He noted that the REP, a key policy introduced to lure high-skilled Malaysians to return, offers several incentives which includes a flat 15 per cent income tax rate for first five years.

However, the 15 per cent tax incentive will drive local high skilled workers overseas instead of drawing emigrants back, he said.

He pointed out that a typical high-skilled Malaysian emigrant earns an average RM46,800 more overseas compared to working in the same occupation here.

To illustrate his point, he said a professional armed with just a bachelor’s degree can earn RM20,000 in Malaysia but would have accumulated RM429,100 more for a similar job in Singapore.

If the professional returns to Malaysia, he will have tax savings of about RM31,415 in the first five years, the economist said, although the worker would have also suffered income loss of about RM220,995 in that five years, due to the lower income here.

According to Lim’s calculations, the emigrant professional could gain RM238,520 in 13 years of working; being based in Singapore for the first eight years before returning home and working in a similar capacity for the next five years.

“In comparison, a professional of the same position that earns RM20,000 each month here has to pay income tax of 18.76 per cent from the start and did not get any income gain,” Lim told the forum.

“REP makes it seems that if your want to leave Malaysia to work elsewhere, you can always come back after several years and you get to pay lower taxes on top of other perks,” he added.

He said brain drain in the country is not only about a loss of talents but has serious fiscal impact of about RM8.4 billion per annum.

He arrived at the figure after taking into account the fiscal impact of both immigration and emigration, tax revenues, consumption taxes from brain drain and levies the government collects from foreign labour.

“The government only benefits about RM2.07 billion from levies, consumption taxes and other factors from immigration and emigration,” Lim said.

Citing from the World Bank’s 2011 survey results, the analyst said the top three reasons behind Malaysia’s brain drain were career prospects (66 per cent), social injustice (60 per cent) and salary and benefits (54 per cent).

However, the government could still roll back on the outflow of talent, he said.

First is for the government to impose a policy to raise local wages for high skilled labour, Lim said, but added that such a solution would not be practical.

“Raising local wages to narrow the wage differential has many negative economic consequences such as creating wage inflation and reducing business competitiveness,” he reasoned.

The second possibility is to increase the REP tax incentive, but Lim said the viability was low in coaxing high-skilled emigrants home and may just trigger the direct opposite of what the solution pushed.

The final possibility, he said, is to reduce the Malaysian income tax rate so it can cut back on the incentive to emigrate, adding that such a move may be the best method to keep talent at home.

“We also suggest that meritocracy be embraced wholeheartedly so that people won’t feel disenchanted and leave,” he said.

The sense of “social injustice” felt by some Malaysians is the second top reason for emigration from Malaysia, he pointed out.

“We should learn from Taiwan on how they encourage their high skills emigrants to return despite having to suffer pay cut,” he said.

He noted that in Taiwan, their overseas workers are willing to return even with a pay cut as long as the country welcomes them and the environment is conducive with good career prospects.

“Tackling the brain drain phenomenon requires more than a single policy but a combination of several policies and measures,” he said.

More than two million Malaysians have emigrated since Merdeka.

Last year, a total 308,834 high-skilled Malaysians have moved overseas, with 47.2 per cent going to Singapore, 18.2 per cent to Australia, 12.2 per cent to US and the rest to other countries like UK and Canada.

A majority of them are professionals (36.3 per cent), associate professionals (9.6 per cent), senior officials or managers (8.3 per cent) and clerks (6.4 per cent), with the balance being in other fields such as services, agriculture and crafts.

All emigrants, even in low skilled jobs, earn an average RM46,800 extra annually overseas compared to working here.

  1. #1 by winstony on Sunday, 22 June 2014 - 8:55 am

    How to stop the brain drain when those governing the country has long ago had their brains (if any) drained?

  2. #2 by Bigjoe on Sunday, 22 June 2014 - 10:04 am

    I was privy to other countries similar effort namely Singapore, Korea, Taiwan back in the 1980s. They had a better program – forcing scholars to return, treating returnees like expatriates, even dual citizenship – THEY STILL DID NOT HAVE GREAT SUCCESS. What they did was prevent the problem from getting worst.

    Malaysia get returnees to come home given all the self-created problems? Bunch of nonsense.

  3. #3 by PRmaju on Sunday, 22 June 2014 - 1:30 pm

    as usual, the useless, clueless kangkong 1RM chicken PM, after listening to some consultants, want to attract Msians back. He tasked it to his subordinates. However, he does not have the intellects nor the diligence to supervise it and let his subordinate to run the show completely. THe result, we all know long ago that it will fail. His stupid people does not even bother to find out that professionals in Spore earn 5~ 10 times on average higher than in Msia. What is saving a few % in income tax when you only earn 10~20 % of what you can earn oversea !! Mind you, it is a few % less income tax . Also , the other so called incentive, returnee can bring back 2 car tax free. To those who are working oversea, this is not an incentive at all. They can enjoy as many cheap cars as many as possible in their adopted countries. Unbelievably stupid !

  4. #4 by digard on Sunday, 22 June 2014 - 5:17 pm

    “To illustrate his point, he said a professional armed with just a bachelor’s degree can earn RM20,000 in Malaysia but would have accumulated RM429,100 more for a similar job in Singapore.”

    While the topic undoubtedly is spot on, some numbers sound wrong/fishy. See above. RM 20.000 is low, even for a fresh graduate; per year. Or, very high, if per month. But then, who’d make RM 429.100 more down south??

    Also, the RM46,800 look arbitrary. Is it before or after tax? And, to the advantage of being in Malaysia, if compared along exchange rate, the cost of living is still steeply higher in most of the developed countries.

    Again, this is not against the correct gist of the article, but it could have rendered it much more effective, if it didn’t mess so much with unclear amounts and numbers.

  5. #5 by yhsiew on Sunday, 22 June 2014 - 6:01 pm

    ///Malaysia’s returning expert programme (REP) is not only ineffective….///

    The REP is not going to bear fruits as long as the NEP is not abolished. Smart Malaysian emigrants are looking at long term planning – their children’s education and welfare in Malaysia should they return, not just the 15 per cent tax incentive. As long as the NEP stands in the way, the REP is doomed.

  6. #6 by Justice Ipsofacto on Monday, 23 June 2014 - 8:36 am

    No good report card to show.
    This time by another of umno’s extension.
    And could they tell us how much money has been spent on that failed programme?

  7. #7 by boh-liao on Monday, 23 June 2014 - 9:20 am

    REP – How LOOoooOONG does d process take 4 an application 2 b approved?

    Even some1 who sacrifices a lot 2 return 2 d 1DERful land may GIVE UP while waiting 4 approval – tan ku ku, bun bun tan leh

  8. #8 by Justice Ipsofacto on Monday, 23 June 2014 - 12:51 pm

    “Tan kau chiu pian peh” = “Wait until misai turn white.”

  9. #9 by TheWrathOfGrapes on Monday, 23 June 2014 - 2:10 pm

    digard :
    “To illustrate his point, he said a professional armed with just a bachelor’s degree can earn RM20,000 in Malaysia but would have accumulated RM429,100 more for a similar job in Singapore.”
    While the topic undoubtedly is spot on, some numbers sound wrong/fishy. See above. RM 20.000 is low, even for a fresh graduate; per year. Or, very high, if per month. But then, who’d make RM 429.100 more down south??

    It should be RM429,100 not RM429.100 Yes, this is quite confusing, until I realize the author meant for 5 years (in reference to the special tax rate for 5 years).

    Note what the author said: accumulated RM429,100 more for a similar job in Singapore.

    The key word is “accumulated”. The RM429 thousand is over and above the pay in Malaysia.

  10. #10 by waterfrontcoolie on Monday, 23 June 2014 - 3:33 pm

    The gap between us and the LITTLE DOT will not be closed; ever as long as we believe that religious beliefs is the main criterion in life. If per chance, societies can be changed based on pure conviction without caring for competition, we would not have all the poor nations around the globe; and it is a fact that those who are able to take up challenges are the ones who will shape the future of this world. The US is such an obvious example! Of course a little nearer is our southern neighbor Within such a short span of time; without any natural resources, their per capital is 5 folds higher. In such scenario, it is near impossible for us to attract those who are really talented; those in their early 30s on conversion of their incomes can earn as much if not more than our average CEOs of the average Malaysian listed companies! The only way out is just to allow the market to take its level; The civil service can never be competitive without the infusion of more competitive brain power! And without a strong Civil Service, the implementation of policies will be uninspiring. The situation is compounded by the very thought that every senior civil servants, nearly retiring age begin to think of his personal interests; after all his bis political bosses have been doing such thing all along! Hence, salvation in such situation is nearly impossible.

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