LOCAL GOVERNMENT, BUREAUCRACY, TAXES AND WELFARE IN MALAYSIA

LOCAL GOVERNMENT IN MALAYSIA

States in Malaysia have their own constitutions and governments. There are 505 state assembly members in Malaysia’s 12 state assemblies. Most of the state governments on peninsular Malaysia are technically led by sultans, but they have little real power. Real power lies with the chief ministers. Sarawak and Sabah are headed by powerful governors. The lowest level of governments are the district officers and regional officers who are in direct contact with local kampung headmen. Some headmen and district and regional officers are elected. Others are appointed from above.

Local divisions: Malaysia is a federation of 13 states (11 states on Peninsular Malaysia and Sabah and Sarawak on Borneo) and three federal territories. Nine of the states are led by sultans and four by governors. The 13 states (negeri-negeri, singular - negeri) are: Johor, Kedah, Kelantan, Malacca, Negeri Sembilan, Pahang, Perak, Perlis, Pulau Pinang, Sabah, Sarawak, Selangor, Terengganu. The federal territories are Kuala Lumpur, Labuan, and Putrajaya. Peninsular states are divided into a total of 137 administrative districts, Sabah is divided into four residences, and Sarawak is divided into five residences. [Source: CIA World Factbook, Library of Congress, 2006]

All Peninsular Malaysian states have hereditary rulers (commonly referred to as sultans) except Malacca (Malacca) and Pulau Pinang (Penang); those two states along with Sabah and Sarawak in East Malaysia have governors appointed by government; powers of state governments are limited by federal constitution; under terms of federation, Sabah and Sarawak retain certain constitutional prerogatives (e.g., right to maintain their own immigration controls). The three Federal Territories are administered under the authorities of the Ministry of Federal Territories. They have equivalent status to other states in Malaysia but do not have a head of state or a state assembly. As at the Federal level, there is a corresponding separation of governing powers at the State level – among the Executive, Judicial and Legislative Authorities – in line with the concept of federalism. [Source: Malaysian Government, CIA World Factbook]

State governments are composed of a legislative assembly, a speaker of the house, and a head of state. Legislative assembly members are elected by single-member constituencies, and assembly members in turn elect the speaker. Legislative assemblies may make or enact laws not reserved for the federal legislature and on subjects under the concurrent purview of federal and state governments. The head of state appoints a chief minister from among legislative members, may dissolve assemblies on the chief minister’s advice, and must approve all legislation. The head of state is the chief executive, subject to advice from an executive council headed by the chief minister. However, chief ministers actually handle state administrative matters, assisted by a cabinet of ministers. State-level agencies enforce and administer state laws, just as federal agencies do for federal laws. District and municipal councils handle policy matters at those respective levels. [Source: Library of Congress, 2006]

Bureaucracy in Malaysia

The Malaysian bureaucracy is dominated by ethnic Malays. Although most are loyal to the ruling party, civil servants have been forced to sign “good behavior” documents that makes it easier for the government to fire them if they criticize the government. Government officials seldom quarrel in public. Red tape and graft have been firmly entrenched in the bureaucracy for a long time.

Liau Y-Sing of Reuters wrote: “In the Malaysian civil service, rewards are modest, punishments are few and jobs are usually secure for life, which offers little incentive for improvement. Public servants are almost all ethnic Malays, due to an affirmative action policy which favors the race in jobs, education and business. [Source: Liau Y-Sing, Reuters, December 25, 2007 >>>]

Malaysia Flip Flop reported: “In December 2009, the racial breakdown of the Malaysian civil service comprising 1,247,894 employees was as follows: Malay (78.2 percent); Other Bumiputras (7.7 percent); Chinese (5.8 percent), Indian (4.0 percent); and Others (4.2 percent). This is the worst multi-racial composition of the government service, with the lowest Chinese and Indian representation in the public service in Malaysia’s 53-year history. This is clearly seen from the three sets of comparative figures of the racial breakdown of the civil service before the NEP (1971) and as compared to Dec. 2009 – Malays (60.80 percent and 78.2 percent); Chinese (20.2 percent and 5.8 percent); Indians (17.4 percent and 4.0 percent); and Others (1.6 percent and 4.2 percent). [Source: Malaysia Flip Flop, December 4, 2011]

The main government ministries are: Ministry of Agriculture and Agro-Based Industry, Ministry of Defence, Ministry of Domestic Trade, Cooperative And Consumerisme, Ministry of Education, Ministry of Energy, Green Technology and Water, Ministry of Federal Territories and Urban Wellbeing, Ministry of Finance, Malaysia, Ministry of Foreign Affairs, Ministry of Health, Malaysia, Ministry of Higher Education, Ministry of Home Affairs, Ministry of Housing and Local Government, Ministry of Human Resources, Ministry of Information, Communication and Culture, Ministry of International Trade and Industry (MITI), Malaysia, Ministry of Natural Resources and Environment, Ministry of Plantation Industries and Commodities, Ministry of Rural and Regional Development , Malaysia, Ministry of Science, Technology and Innovations, Malaysia, Ministry of Tourism, Ministry of Transport, Malaysia, Ministry of Women, Family and Community Development, Ministry of Works, Malaysia, Ministry of Youth and Sports.

Bernama reported: “Civil servants have been urged to continuously improve their performance as high productivity would not only lead to their promotion and salary increase, but would also help in national development. They have also been told to stay away from public rallies and demonstrations as it clearly violated the Civil Servants Regulations (Conduct and Discipline) 1993. In 2013, the government said it had received no reports of civil servants in opposition-led demonstrations. [Source: Bernama, Malaysia n Prime Minister’s Office, January 17, 2013]

Red Tape in Malaysia

Ooi Sue Hwei wrote in Malaysian Business, “Bureaucracy could hurt Malaysia’s position as the world’s 17th largest trading nation and thwart efforts to attract foreign investors. Despite all that the country has to offer — a skilled workforce, stable political environment, good infrastructure, high technology facilities and tax incentives — red tape could be the one factor that could repel foreign investors. [Source: Ooi Sue Hwei, Malaysian Business, January 1, 2007]

Bureaucracy remains one of the main gripes of investors. In the early 2000s, then Deputy Prime Minister Datuk Seri Najib Razak expressed unhappiness when he found out that bureaucracy had stymied the plans of India’s largest IT company, Infosys Technologies Ltd, to invest in Malaysia six years ago. Infosys chairman NR Narayana Murthy had said the problems they faced included the limited movement of IT specialists to Malaysia and immigration and other travel-related matters. He described red tape in Malaysia as “numbing”, especially when it came to getting work permits for knowledge workers. He said despite Malaysia’s concern about keeping out illegal immigrants, the Government and its agencies should be aware that skilled workers were essential to any IT company. Such incidents make one wonder whether Malaysia is really serious about developing its IT industry. It has to realise that its hesitation to issue visas to skilled foreign workers is discouraging investors and driving world-class IT companies to other countries.

This is by no means a unique incident. In May 2006, US investors who attended the World Congress on Information Technology in Austin, Texas, said that while they valued the political stability and top-class infrastructure in Malaysia, they faced major hurdles in getting work permits for their expatriate staff. A press article reported a senior official with a US IT company in Malaysia as saying, ?If my bosses know how hard it is for us to get permits from the Immigration Department, there is a good chance that we would look elsewhere. Singapore and Ireland are so far ahead when it comes to clearing the red tape.

Chairman of the Consortium of Indian Industries in Malaysia, Umang Sharma, was reported as saying that despite the visa issue being constantly brought up at various forums, it was still a major problem. Business visas are not issued immediately, which poses difficulties for many foreigners, especially those in the IT sector. How can foreigners be attracted to Malaysia when getting a work permit, even by multinational corporations, takes almost a year, he said.

Delay in the issuance of work permits is not the only problem. Other complaints include immigration issues, a poor delivery system, and policy changes and inconsistencies. A senior official from a European embassy tells Malaysian Business of his six-month wait to bring in his car from a neighbouring country. On the other hand, prior to his transfer, it took only one month to transfer his car to that country.

Chew Seng Kok, a partner at law firm Zaid Ibrahim & Co, once said in a press article: “Malaysia has too much bureaucracy and there is not enough coordination among the authorities.” He said investors wishing to set up plants in the country had to deal separately with both the federal and state governments in matters of business licensing and land use. This is different from Singapore, whereby investors only go to one place.

See Foreign Investment in Malaysia

Malaysia: the Highest Ratio of Civil Servants in the World?

Malaysia Flip Flop reported: “With 1.3 million civil servants to a population of 26 million, Malaysia has one of the highest civil servants-to-population ratio in the world according to the Organisation for Economic Cooperation and Development. In 2009, Malaysia’s civil servants-to-population ratio was the highest in Asia Pacific. The ratio was 4.68 percent, compared to Singapore’s 1.5 percent, Indonesia’s 1.79 percent, Korea’s 1.85 percent and Thailand’s 2.06 percent all of which have less than half Malaysia’s ratio. [Source: Malaysia Flip Flop, December 4, 2011]

1) The Number of civil servants in Malaysia rose from 894,788 in 2000 to 1.2 million in 2008 to 1.3 million in 2011. Between 2000 and 2008 the number of civil servants increased by 38,151 a year or 104 a day. 2) Money spent on salary / remuneration: RM25.6Billion in 2005; RM41.0Billion (or RM22,800 from each tax payer) in 2008. That’s whopping 60 percent increase in just three years. 3) Every 3 taxpayers support 2 civil servants in Malaysia. In Malaysia, 1.8 million people pay tax. There are 1.3 million civil servants.

Much of the budget (2011) continues to go into operating a bloated civil service. As much as three quarters of the national budget is spent on paying salaries and other benefits to over 1.3 million civil servants. A post-2011 Budget dialogue highlighted the massive amount (35 percent of the total RM162.8 billion operating expenditure) to be spent on emoluments, pensions and gratuities of civil servants. A panelist, Ministry of Finance budget division director Datuk Dr Rahmat Bivi Yusuff admitted that there is a need to trim the civil service to reduce the budget deficit.

Whilst it is the growing trend of many countries to reduce their civil service, the PM’s Department in particular, has done the opposite. It more than doubled its number of civil servants from 21,000 to 43,554 this year. In stark contrast, the White House employs only 1,888 staff. The White House budget is US$394 million for 2011. The PM’s Department has been allocated a whopping RM18.14 billion for the year 2011, almost double the RM10.2 billion 2010. Pemandu, which stands for Performance, Management and Delivery Unit, was set up last year under the Najib administration as one of the pillars in his Government Transformation Plan… is a massive drain on resources. In a span of two months the government spent RM20 million just to pay 50 consultants,.

Malaysia Raises Salaries of Civil Servants by up to 35 Percent

In May 2007, Associated Press reported: “Malaysia's 1 million civil servants will get a salary hike of up to 35 percent from July 1, their first pay rise in 15 years, the Prime Minister announced. Their cost of living allowance will also increase by 100 percent in one of the most generous incentives in recent times, which Prime Minister Abdullah Ahmad Badawi said will cost the government a total of 8 billion ringgit (US$2.35 billion) annually. About a half million retired government servants will also see a hike in their pensions. The announcement came amid speculation Abdullah might call early general elections. Financial sops for government officials and the public are typical in the run-up to elections.[Source: AP, May 22, 2007]

``Now the hopes of the people and the government have increased .... work as hard as you can for the future of the country,'' Abdullah said in a speech to about 5,000 government servants who cheered loudly when he announced the pay hikes. The raises will be given in four tiers—7.5 percent, 15 percent, 25 percent and 35 percent —depending on the employment category of the workers. The 35 percent hike is for the lowest paid civil servants who form a majority of the government work force.

The salaries of the highest paid officials are not publicly disclosed but those at the bottom rung earn about 480 ringgit (US$140; euro108) per month. Their new salaries will be 650 ringgit (US$190; euro140). Abdullah said police and army personnel will receive salary hikes of 9 percent to 42 percent, slightly more than other civil servants because salaries of security forces have traditionally been low.

The pay increase will cost the government 3.4 billion ringgit (US$1 billion; euro780 million) this year and 6.8 billion ringgit annually (US$2 billion; euro1.5 billion). The hike in the cost of living allowance will put an additional burden of 1.2 billion ringgit (US$350 million; euro270 million) on the government annually, he said.

Abdullah said the government decided to give the salary hike in light of the country's strong economic growth with gross domestic product growing an average of 5.6 percent over the past five years. He said the rising cost of living because of oil price increases and higher government taxes were also taken into account. Abdullah said higher salaries are needed to motivate employees. Malaysian government workers last got a salary increment in 1992. Their salary structure was revised in November 2002, which provided some relief but it was not considered as a pay hike officially.

More Pay Raises for Malaysian Civil Servants

In October 2011, Bloomberg reported: “Malaysia will increase the pay of civil servants by as much as 13 percent as the government overhauls the civil-service system, Prime Minister Najib Razak said in his budget speech in parliament in Kuala Lumpur today. The 1.3 million federal government workers will get a 2 percent annual pay rise beginning 2013, Najib said. They will also get an extra half-month salary in December, he said. [Source: Bloomberg, October 7, 2011]

In March 2013, government announced another pay raise for Malaysian civil servants. Bernama reported: “Prime Minister Najib Tun Razak, who made the announcement, said this would mean every civil servant would receive between RM80 and RM320. “This measure will involve an expenditure of RM1.5 billion,” he said. [Source: Bernama, March 11, 2013]

The prime minister also said that effective Jan 1 this year, three additional annual increments would be provided after the maximum salary on the salary schedules. “This will enable 182,434 officers on the maximum salary to enjoy an annual salary movement from this year, subject to regulations in force,” he said. Najib said all the announced initiatives were part of the New Remuneration System (NRS), which would henceforth be known as the Transformative Remuneration System (SST). “Hopefully, this initiative will help motivate the civil servants in their service to the nation,” he said.

Najib said that in the event there was no salary adjustment or review to ensure that civil servants remained productive and performed well, the government agreed to give a special salary movement of three percent to those on the maximum salary, provided they met the conditions of the stipulated annual salary movement and performance. The prime minister also had good news for the almost 50,000 contract officers whose service would end on Dec 31 this year. He said their service would be extended by another year pending an overall study.

Najib also said that the government had agreed in principle to the methods of implementing promotion, namely fast-track promotion, promotion based on subject matter experts and promotion based on highly skilled personnel. “The methods of implementation, including development of the criteria and structure of the special panel for the three methods would be fine-tuned prior to implementation,” he said. The Public Service Department (PSD) has begun discussions with the respective heads of service or department to improve the 22 associated schemes of service in terms of widening of scope, functions and duties. “The schemes of service in the salary grades one to 10 will be upgraded equivalent to the Penilaian Menengah Rendah [PMR] entry qualification,” said Najib. Among these schemes of service are office assistant, driver and tradesman K3.

Malaysia’s Smart Identification Cards

Malaysia requires citizens to carry a national identity card with them at all times. In the early 2000s, Malaysia became the first country to introduced a system of smart identity cards which have a silicon chip imbedded in them that contains information that can be read with a special electronic reader.

Known as the Government Multi-Purpose Cards (GMPC). The credit-card-size card serve as identity card, drivers license, e-cash card and have information on religious, ethnic, finances, health, immigration status and fingerprints. Creating the card system cost around $800 million. Every person over 12 is supposed to possess one. In the future it will contain even more information.

According to the Malaysian Government: Malaysia’s primary document for personal identification is the national identity card. This document is important to the individual as it is used in virtually all inter-personal transactions. All citizens are required to apply for and carry their identity card from the age of 12. The latest version of national identity card is the MyKad, a microchip-based smartcard which securely stores various types of information for personal identification. [Source: Malaysian Government]

Malaysian Government Budget and Debt

Malaysia’s Government Budget: revenues: $59.22 billion; expenditures: $75.31 billion (2012 est.). Budget surplus (+) or deficit (-): -5.2 percent of GDP (2012 est.), country comparison to the world: 161. Public debt: 53.5 percent of GDP (2012 est.). country comparison to the world: 54 51.8 percent of GDP (2011 est.). This figure is based on the amount of federal government debt, RM501.6 billion ($167.2 billion) in 2012; this includes Malaysian Treasury bills and other government securities, as well as loans raised externally and bonds and notes issued overseas; this figure excludes debt issued by non-financial public enterprises and guaranteed by the federal government, which was an additional $47.7 billion in 2012. [Source: CIA World Factbook]

In fiscal year (FY) 2005, government revenues totaled US$30.6 billion, and expenditures were US$34.6 billion, including US$9.4 billion in capital expenditures. The government’s budget deficit was estimated to be 3.8 percent of gross domestic product (GDP), down from 5.6 percent in FY2002. Public debt was 48.3 percent of GDP.

Taxes in Malaysia

Malaysia get a lot of money from oil and natural gas. The national oil and gas company Petronas provides a substantial source of income for the Malaysian government, with 45 percent of the government's budget dependent on Petronas' dividend. The oil and gas sector supplied about 35 percent of government revenue in 2011.

Taxes and other revenues:19.3 percent of GDP (2012 est.), country comparison to the world: 168. Malaysia has a tax of 10 percent to 30 percent on repatriated capital gains.. They were set up to discouraged speculative attacks but have turned away investors. [Source: CIA World Factbook]

Income Tax: All individuals are liable to pay tax on income accrued in, derived from or remitted to Malaysia. Sources of income which can be taxed includes gains and profits from trade, profession and business, salaries, remunerations, gains and profits from an employment, dividends, interests or discounts, rents, royalties or premiums, pensions, annuities or other periodic payments and other gains or profits of an income nature not mentioned above. [Source: Malaysian Government]

Taxable income is arrived at after adjusting for expenses incurred wholly and exclusively in the production of the income. The rate of tax depends on the resident status of the individual which is determined by the duration of his stay in the country (as stipulated under Section 7 in the Income Tax Act 1967). A resident individual is taxed on his chargeable income at graduated rates from 2 percent to 30 percent after the deduction of tax relief. However, an individual with chargeable income of less than RM2,500 is not taxed. The chargeable income of an individual resident is arrived at by deducting from his or her total income the personal relief. Tax liability of a resident individual is reduced by rebates. Income tax matters in Malaysia are under the jurisdiction of Inland Revenue Board of Malaysia.

Property Tax Property or Assessment Tax is levied on all property holdings, including shops, factories, residential, agricultural and others, situated in the areas under the jurisdiction of local authorities.

Zakat in Malaysia

The State Government has set-up zakat payment centres for the Muslim community in Malaysia. These are known as Zakat Collection Centres or PPZ. Zakat payments can be done online. Financial institutions such as Bank Pertanian Malaysia and Maybank act on behalf of the State Governments concerned in providing online payment facilities at their websites.

Zakat, giving away a certain percentage of their income and savings to the poor, is one of the pillars of Islam. It is regarded as a form of worship and an expression of sympathy and a sharing in God's blessing. It has traditionally been practiced in association with Ramadan, when the rich traditionally held feasts for the poor, but today is very institutionalized and resembles paying taxes, with government and mosque bureaucracies collecting much of the money and dispensing it as a kind of welfare.

There are about 700 verses in the Koran the refer to zakat. Among them is: "O ye who believe! Give of the good things which ye have earned" Zakat shows a willingness to "purify" earthly wealth and take on social responsibility for the Muslim community. Providing debt relief and helping strangers are both considered forms of zakat.

Zakat was originally a religious tax of 1 to 5 percent of a individuals earnings. It was an obligation often conjoined with prayer and was distinguished from the free will giving. Muslims regarded it not as a tax but rather as a “loan” made to God---in addition to taxes to authorities--- specifically to help the poor and needy. These days Sunnis are expected to hand over 2.5 percent of their income; Shiites, 10 percent. In some Arab and Muslim countries, zakat replaces taxes.

Ramadan Social Security and Welfare in Malaysia

Observers often contend that the government has become very successful at managing social welfare and poverty reduction. Indeed, many development agencies have limited or ended their activities in Malaysia. The Department of Social Welfare administers 48 facilities that provide services for elderly persons, juvenile offenders, physically and mentally disabled persons, and others. The Social Security Organisation (SOCSO) administers social insurance, such as medical and disability benefits, for people—and their dependents—who are injured or killed in the course of employment. Available data suggest that from 1975 to 2002 the number of persons receiving social welfare services ranged from 4,000 to 6,000 persons annually, and that the number of persons receiving social insurance increased from 9,348 to 239,372. The Employee Provident Fund (EPF) provides retirement benefits derived from compulsory 12 contributions from employees and the government. From 1975 to 2002, the number of employees who contributed to the EPF increased from 2.9 million to 10.2 million.

Employees in Malaysia are entitled to participate in various schemes which provide for social insurance and retirement benefits. The Employees' Provident Fund (EPF) is a scheme that provides retirement benefits for members through the management of their savings in an efficient and reliable manner. These savings are accrued for each employee through contributions from employees and their employers. Contributions are mandatory for all employees and employers (with the exception of pensionable government employees). [Source: Malaysian Government]

The Social Security Organisation (SOCSO) operates a social insurance scheme provided by the Government of Malaysia to provide aid in financial guarantees and protection to employees and their families in the event of accidents resulting in disablement, death, or affliction with occupational diseases. Private sector employees earning RM3000 and below monthly and their employers are required to make contributions. The following are some services provided by SOCSO:

Civil servants employed by the Government of Malaysia are also entitled to a range of benefits, including: Medical benefits, Leave entitlement and Housing benefits In view of the current demand for skilled workers, attractive incentives are currently being offered to Malaysian citizens working and residing overseas to encourage their return to Malaysia. The government has also introduced special requirements to protect employed persons with disabilities such as the Code of Practice for The Employment of Persons with Disabilities in the Private Sector.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Malaysia Tourism Promotion Board, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated June 2015

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