KUALA LUMPUR (Oct 10): Two industry groups have expressed disappointment that Budget 2027 has fallen short of providing sufficient relief from rising business costs, warning that mounting operating expenses continue to squeeze profit margins and undermine the competitiveness of Malaysian businesses.
The Federation of Malaysian Manufacturing (FMM) and the SME Association of Malaysia (SME Malaysia) said the budget lacked sufficient direct support to ease cost pressures, particularly for smaller enterprises and manufacturers, despite measures aimed at encouraging investment and improving productivity.
"We cannot continue addressing the rising cost of living without giving equal attention to the rising cost of doing business. Both are closely connected," said SME Malaysia national president Dr Chin Chee Seong in a statement on Saturday.
Both groups nevertheless welcomed the government's decision to exempt micro, small and medium enterprises (MSMEs) with annual turnover of RM50 million and below from the planned increase in the monthly minimum wage to RM2,000 from RM1,700, scheduled for June 2027.
SME Malaysia said Budget 2027 placed considerable emphasis on helping households cope with rising living costs through increased financial assistance and personal income tax relief, but did not provide sufficient direct support to businesses struggling with higher operating expenses.
"When consumers have more disposable income, local businesses can benefit from increased spending," Chin said. “However, higher consumer spending does not necessarily translate into higher business profits when operating costs continue to rise."
He noted that SMEs continued to face cumulative increases in utilities, commercial rental, financing costs, logistics, wages, sales and service tax (SST) and regulatory compliance expenses.
Citing an SME Malaysia survey conducted in April 2026, Chin said 76% of respondents were significantly affected by higher fuel and energy costs, while 45% anticipated cash-flow difficulties within three to six months.
While welcoming the minimum wage exemption, he cautioned that smaller businesses could still face indirect wage pressures as larger companies raised salaries, forcing them to adjust their pay structures to retain workers.
Higher labour costs among suppliers, manufacturers and logistics providers could also be passed down through supply chains, further increasing costs for smaller businesses, he added.
On the one-percentage-point reduction in qualifying MSME corporate income tax rates, Chin said the potential annual savings of RM6,000, equivalent to RM500 a month, might be insufficient to offset rising operating expenses, particularly for businesses making little or no profit.
"Financing facilities are useful, but loans must eventually be repaid. Similarly, automation and digitalisation are important for long-term competitiveness, but many smaller businesses are struggling with today's electricity bills, rental payments and cash-flow requirements," he said.
SME Malaysia urged the government to consider targeted utility and energy cost assistance, temporary SST relief on commercial rental and leasing, and more affordable short-term working capital facilities.
"A strong domestic economy requires not only consumers who can afford to spend, but also businesses that can afford to operate. Both must be supported for Malaysia to achieve sustainable economic growth," Chin said.
FMM disappointed over lack of industrial transformation support
Separately, FMM said Budget 2027 was broadly balanced in sustaining economic growth and fiscal consolidation, but expressed disappointment over insufficient support to help manufacturers cope with rising operating costs and barriers to technology adoption, innovation and green investment.
Its president Jacob Lee Chor Kok said businesses needed greater capacity to reinvest, expand operations and create better-paying jobs, while warning that several longstanding structural issues affecting manufacturing competitiveness remained unresolved.
"The central priority remains to leave more capital in the productive economy for businesses to reinvest, expand and create better-paying jobs," Lee said in a statement.
Among FMM's key disappointments was the government's decision not to adopt its proposed RM1.5 billion Smart Manufacturing Support Package for 2027 to 2030, which would have provided dedicated grants to help manufacturing SMEs meet the upfront costs of adopting new technologies.
FMM said the omission left a gap in support for manufacturers seeking to automate and modernise their operations under the New Industrial Master Plan 2030 (NIMP 2030).
It called for the full subsidisation of the RM8,000 on-site Smart Factory Assessment fee under the Smart Tech-Up Programme, alongside soft financing at interest rates of 2% to 4% and longer repayment periods.
The federation also urged the government to undertake further SST reforms to address cascading taxes and embedded production costs, while establishing a more transparent and predictable foreign worker management framework.
On the minimum wage increase, FMM welcomed the exemption for smaller enterprises but stressed the need for clear implementation guidelines and sufficient time for businesses to adjust.
It also cautioned that the proposed RM2,500 minimum wage for semi-skilled jobs and graduates should reflect job requirements, demonstrated competencies and productivity.
"Existing skills mismatches mean employers may face both higher wage obligations and additional training costs to equip recruits with the capabilities required for their roles," Lee said.
FMM welcomed the one-percentage-point reduction in qualifying SME corporate income tax rates to 14% on the first RM150,000 of chargeable income and 16% on the next RM450,000, which could provide annual tax savings of up to RM6,000 per eligible enterprise.
However, it reiterated its proposal to widen the preferential tax bands to give growing SMEs greater capacity to reinvest, while removing the RM2.5 million paid-up capital criterion that could exclude capital-intensive manufacturers.
The federation also acknowledged the increase in business financing and guarantee facilities from RM50 billion to RM57 billion in 2027, including RM32 billion in guarantees through Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP) and Credit Guarantee Corporation Malaysia Bhd (CGC).
"Affordable financing, clear eligibility criteria and timely approvals will be essential to enable SMEs and mid-tier manufacturers to translate these facilities into automation, technology adoption, capacity expansion and stronger competitiveness," Lee said.