Dr Lim Kim Hwa say the REP is simply not attractive enough to draw highly skilled workers based overseas to come back to Malaysia, June 21, 2014. — Picture by K.E. Ooi

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.