Question to Readers: What is the purpose of the foreign worker levy?

I often need info for my policy research that I can’t find in government publications and websites. I could, of course, email the relevant ministry to ask them, but knowing civil servants (of which I was one before), they are likely to give me cut-and-paste answers, which don’t really answer my question. I’ve been told that the best way to get info sometimes is for MPs to ask them in Parliament. But since I’m not an MP, I don’t have the benefit of that channel. Unfortunately Singapore also lacks a Freedom of Information Act, which ordinary citizens can use to get information from their government.

I have therefore decided to start a new category of posts on my blog, tentatively titled Question to Readers. The purpose is to solicit answers from readers who may be in the know about that particular area. It would be great if readers could answer either by posting a comment, or by emailing me directly. My email address can be found on my About Me page. Thank you!

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My first volley of questions concerns the foreign worker levy:

The Ministry of Manpower (MOM) website explains that the Foreign Worker levy “is a pricing control mechanism to regulate the demand of foreign workers in Singapore”, while the EnterpriseOne website says that the levy “is a pricing mechanism to control the number of foreign workers (including foreign domestic workers) in Singapore”.

I understand from the MOM website that the Foreign Worker (FW) levy and Foreign Domestic Worker (FDW) levy ranges from $50 to $470, depending on the industry and skill level of the worker.

Q1.    Since MOM is the ministry that issues Work Permits (WP), is it not possible for MOM to control the number of foreign workers in Singapore by controlling the number of WPs it issues? Why is there a need for a levy to serve this purpose?

Q2.    For FWs, there is already a Dependency Ratio for each industry, that requires that, say in the case of the construction industry, one local must be hired for every seven FWs. Doesn’t this ensure that companies don’t simply hire only FWs to the exclusion of Singaporeans?

Q3.    What is the FW and FDW levy monies collected used for? Do they simply supplement the operating budget of MOM, or its reserves, or are they specifically allocated to certain development expenses like worker training?

Q4.    What is the total amount collected in FW and FDW levies in FY2008 (or FY2007 if FY2008 figures are not available)?

Do any readers have the answers to these questions? Any info would be much appreciated.

Author: Gerald Giam

Gerald Giam is the Member of Parliament for Aljunied GRC. He is a member of the Workers' Party of Singapore. The opinions expressed on this page are his alone.

9 thoughts on “Question to Readers: What is the purpose of the foreign worker levy?”

  1. Referring to Q1 only, it probably has to do with Singaporeans’ mentality with anything that’s free. If permits were freely given, there’d be nothing to stop Singaporean bosses from hiring 100% foreigners (at a much lower salary too). So the levy probably prohibits such employers from using these tactics.

    Oh, and probably also to pay for processing and manpower from handling the permit paperwork. :)

  2. Ooh yeah, totally forgot about that.

    Perhaps then it’s related to salary, i.e. though the FW/FDW could have a lower salary than a comparable local, the levy sort of makes the overall cost of the FW/FDW similar to that of a local.

  3. Hi,

    Q1: Likely a mode of income generation.

    Q2: Although the rules is set to control the hiring of FW, there’s still cases of cheating. Some have been caught. Many have not.
    http://informationreadbyme.blogspot.com/2008/11/hire-foreign-or-local.html

    As for your post itself.

    “I could, of course, email the relevant ministry to ask them, but knowing civil servants (of which I was one before), they are likely to give me cut-and-paste answers, which don’t really answer my question.”

    Might be a bit misleading as
    “they are likely to give me cut-and-paste answers”

    and you

    “(of which I was one before)”

    So you are the same? Just pointing it out.

  4. Gerald

    In brief on your query on business point if view q1 to q3

    a) levy will price signal to business will be reminded of the bottomline cost to productivity ratio on monthly profitloss basis and this also reduces the chances of “misrepresentation” since it is controlled by both price(levy) and dependency ratio.
    Daniel may perceive as many but due to both levy and dependency and harsh penalties if caught as statistical variance, the number of such is quite small as compared to number of FW hired.

    b) No, as companies would need to have certain completion ratios per building contracts. It also results that most locals end up in mostly some form of superviosry role. As whether dependency ratio or levy is adequate, depends on parties perspective. This also applies to both professional and service jobs due to the onset of technology.
    Further, it allows for policy tweaking depending on economic situation

    c) some of the levies would be needed as you need to hire Singaporeans to both monitor and review and it provides revenues for the govt. Well, would disagree with your earmarking suggestion as it constrains financial requirements

    Regards

  5. Actually, it’s kinda embarrassing.

    I have worked in HR for about 5 years and dealt with many foreign workers. But I have never asked myself that question before.

    Well, I guess the foreign worker levy serves no special purpose. It is only one of the checks and balances meant to keep employers in place.

    Think of the FW levy along the lines of the Fair Employment Guidelines. The Fair Employment Guidelines does not control the number of married employees in the workforce; it’s a check and balance.

    Ok. We’ll leave the Dependency Ratio out of this. Say, I have 2 candidates for an executive IT job.

    One is a local. He’s a fresh grad whose expected salary is S$3000. The other is a foreigner. He has about 2 years of relevant experience and his expected salary is S$2000.

    Both are equally good. Both presented themselves as reliable candidates during the interview. But I can only choose one.

    From HR’s perspective, I will select the foreigner ‘cos he has the experience and yet, he’s “cheaper”.

    Now, “pro-locals” will try to politicize this by saying, hey, you can’t base your decision on labor costs. Foreigners tend to be cheaper as they are valued at weaker currencies. Then, I can say, hey, the balance is not tipped in the first place. The foreigner already has the levy “tagged” to him, which made him equally competitive.

    Therefore, I don’t think the FW levy is there to control the number of FWs in Singapore. You were right; the number of work permits can do that, not the levies.

  6. Thanks all for your comments and answers. I had written separately to MOM and they have replied me. I have sought, and am now awaiting their permission to post it on my blog. Stay tuned!

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