Foreign Worker Levy May Fund Mechanisation: What Tighter Labour Rules Mean for Factories

Key Takeaways

• On 12 October 2026 the Treasury secretary general, Tan Sri Johan Mahmood Merican, said the government is open to using part of foreign worker levy collections to fund mechanisation, as reported by The Edge Malaysia.
• The target is to cut foreign worker dependency to 10% of the workforce by 2030. MITI deputy minister Sim Tze Tzin told reporters on 2 October that companies will find it "increasingly difficult" to get foreign labour.
• On 13 October the Home Minister said he does not rule out letting screened, registered refugees work in 3D sectors, according to Utusan Malaysia. Nothing has been implemented yet.
• Enforcement is tightening: Johor Immigration detained 492 foreign workers and a local factory manager at an automotive and electronics component factory in Tebrau, RTM reported.
• For factory owners and tenants, the message is the same from every direction: fewer and costlier foreign workers, so the building has to support more machines per worker.

What happened

Three separate statements in two weeks point the same way.

The levy could pay for machines

At a post Budget 2027 discussion on 12 October, Treasury secretary general Johan Mahmood Merican was asked whether money from foreign worker levies could be channelled into mechanisation instead of going into the Consolidated Fund. His reply, quoted by The Edge Malaysia: "This is not something that in principle we're not open to looking at."

The same report notes that the government aims to reduce foreign worker dependency to 10% of the workforce by 2030, and that the multi-tier levy system, meant to make heavy users of foreign labour pay more, was supposed to roll out this year under the 13th Malaysia Plan. It also restates the Budget 2027 minimum wage move: RM1,700 to RM2,000 a month from June 2027, with micro, small and medium enterprises with annual revenue below RM50 million exempt. KPMG senior tax policy adviser Dr Veerinderjeet Singh told the forum that productivity measures need to be tied to measurable outcomes.

Today the levy for a manufacturing worker in Peninsular Malaysia is RM1,850, as listed by the Immigration Department. In July the Federation of Malaysian Manufacturers (FMM) asked for a multi-tier levy in which firms keeping foreign workers at 10% to 15% of their workforce would pay less, possibly below the current fee, while heavier users pay more, and for levy money to be reinvested in automation for SMEs, as reported by the NST. The Treasury comment is the first sign from the finance side that the second half of that request is on the table.

Fewer foreign workers is the stated policy

On 2 October, at the Smart Manufacturing Awards 2026 in Bayan Baru, MITI deputy minister Sim Tze Tzin said foreign workers make up about 13% of the workforce now and the target is 10% by 2030. "This means companies and industries will find it increasingly difficult to obtain foreign labour," he said, according to RTM. He added that easy access to foreign workers reduces the incentive to automate. (The Edge report uses 15% as the current share; the two officials quote different bases, but the 10% target is the same.)

Refugees as a possible labour pool

On 13 October Home Minister Datuk Seri Saifuddin Nasution Ismail told the Dewan Rakyat that the government may let registered refugees who pass screening fill jobs in 3D (dirty, dangerous, difficult) sectors. Utusan Malaysia reported that he cited about 225,000 people with refugee status in UNHCR records, a workforce of 17 million and a cap of 10% foreign workers under the 13th Malaysia Plan, about 1.7 million across five sectors including manufacturing. He stressed the idea has not been implemented.

Raids on factories

The same day, RTM reported that Johor Immigration, with the border control agency AKPS, raided an automotive and electronics component factory in the Tebrau industrial area after weeks of monitoring. It detained 492 foreign workers (364 men and 128 women) from seven countries, plus a local factory manager, under the Immigration Act 1959/63.

Why it matters for factories

Labour is the cost line that decides how a factory is laid out. A plant that runs on many hands needs space for people: canteens, hostels or transport, and wide manual aisles. A plant that runs on machines needs power, floor strength, clear height and data cabling. Every statement above pushes manufacturers from the first model towards the second:

• Supply of workers: the 10% cap and the quota system decide how many foreign workers a firm can bring in. Firms near the cap cannot simply add a shift.
• Cost of workers: a higher wage floor from June 2027 and a tiered levy, if it arrives, both raise the cost of each extra worker.
• Risk of non-compliance: the Tebrau raid shows that a factory manager can be detained with the workers. Using undocumented labour to cut cost is a real legal risk for the business and for the person running the site.
• Possible help: if levy money is ring-fenced for mechanisation, firms that are already planning automation could get support. Nothing has been decided, so do not build a plan around it yet.

What it means for owners, tenants and buyers in the Klang Valley

Many factories in Klang, Kapar, Shah Alam and the rest of Selangor are older terrace and semi-detached units built for labour heavy work such as food processing, plastics and metal fabrication. Those firms are the ones most exposed to labour rules, and also the ones most likely to need a building upgrade when they automate.

Owner occupiers. Before you buy machines, check the building. Robots, CNC lines, conveyors and automated racking add electrical load and point loads on the floor. Use our factory power calculator to convert machine kW into the amps you need from TNB, and the floor loading calculator to see whether the slab can carry the new equipment. If the current unit cannot, a move may cost less than a TNB upgrade plus a new slab.

Tenants. Automation usually means changes to the landlord's building: more power, new trunking, sometimes floor works. Agree in writing who pays for the upgrade, whether the landlord consents, and what must be removed at the end of the lease. Ask early, because a TNB supply increase can take months.

Buyers and investors. Units with high power, strong floors and good clear height suit the direction manufacturers are being pushed. If you are shortlisting, filter for those specs, for example our list of high floor loading factories for rent in Selangor. Do not pay a premium on a promise of policy help that has not been announced.

Budget 2027 also extended the Accelerated Capital Allowance to 2030 and added a sales tax refund on machinery bought from local dealers. Our summary of Budget 2027 for factory owners covers those measures.

Practical next steps

1. Count your ratio. Work out foreign workers as a share of your total workforce. If a tiered levy follows the FMM proposal, firms at 10% to 15% would sit in the cheaper band.
2. Check every permit. Make sure every foreign worker has a valid permit and that your quota applications go through the e-Quota module in FWCMS, which the Human Resources Ministry now runs.
3. List the jobs to automate first. Packing, palletising, material handling and inspection are common starting points.
4. Test the building. Power, floor loading, clear height and space for racking. Get a TNB consultant or engineer to confirm before ordering machines.
5. Talk to your landlord or lender early. Upgrades need consent and sometimes financing.
6. Watch for the details. The multi-tier levy rates and any mechanisation fund are not yet announced. We will report when they are.

FAQ

Has the government decided to use the levy for mechanisation?

No. On 12 October the Treasury secretary general said the government is open to looking at it. There is no decision, amount or date yet.

What is the foreign worker levy for manufacturing now?

RM1,850 per worker in Peninsular Malaysia and RM1,010 in Sabah and Sarawak, as listed by the Immigration Department.

Can factories hire refugees now?

No. The Home Minister said on 13 October that the idea of letting screened, registered refugees work in 3D sectors is being considered but has not been implemented.

What is the foreign worker target?

10% of the workforce by 2030 under the 13th Malaysia Plan.

Does this change what factory I should rent or buy?

If you plan to automate in the next few years, put power supply, floor loading and clear height at the top of your checklist, and agree upgrade terms with the landlord before you sign.

FactoryHub is dedicated to helping every client find the right factory or warehouse. If you need a unit with the power and floor strength for automation in Klang or anywhere in Selangor, call Peter Tan (REN 12771) at 016-666 6872.