The Malaysia Retail Chain Association (MRCA), representing over 550 retailers with more than 40,000 outlets, and the Malaysia Shopping Malls Association (PPKM), with 733 member malls nationwide, have urged the government to introduce a phased implementation of the 8% Service Tax (SST) on commercial property rentals and leasing under Budget 2026.
Both associations recommend reducing the rate to 4% in 2026, then gradually increasing it to 8% over the next decade. They argue that this measured rollout would allow businesses and consumers more time to adapt while still supporting the government’s fiscal goals.
Relief for Construction and Refurbishment Costs
The retail and mall operators are also calling for the SST on construction and refurbishment works to be halved from 6% to 3%. Refurbishment every two to three years is a compulsory condition under tenancy agreements, and lowering this cost would ease financial pressure on tenants while keeping malls modern and competitive—especially as Malaysia gears up for Visit Malaysia 2026.
Rising Costs Add to Pressure
A recent PPKM survey highlights that retailers face an additional RM1.3–RM1.5 billion in annual taxes from the new rental SST. This is far above the average rental increase of 5% typically spread over two to three years, creating a sudden financial shock.
At the same time, retailers are contending with higher staff costs—including a minimum wage rise to RM1,700, expanded EPF contributions for foreign workers, and the higher EIS/SOCSO wage ceiling. Meanwhile, new U.S. tariffs on selected imports such as apparel, electronics and food items are further pushing up costs.
Mall operators, too, are under strain, with the SST expected to raise operating costs by 15–18%, compounding an existing 27% shortfall between operating expenses and recoverable charges.
Impact on Consumers and the Wider Economy
If costs are passed on, consumers are likely to feel the squeeze. The extra RM1.3–RM1.5 billion in taxes equates to 0.2–0.4% of Malaysia’s total retail sales in 2024, signalling possible price hikes. The expansion of SST to imported staples such as salmon, cod and king crab will also put additional pressure on household budgets.
The retail industry, while supportive of the government’s fiscal objectives, stresses that measures must align with the Madani vision of sustainability, inclusivity, and rakyat well-being.
A Call for Balance in Budget 2026
MRCA and PPKM argue that a phased, balanced approach in Budget 2026 would:
- Safeguard Malaysia’s retail competitiveness.
- Protect jobs in a sector employing hundreds of thousands.
- Preserve consumer purchasing power.
- Maintain mall vibrancy and international appeal.
The associations reaffirm their commitment to working with policymakers to ensure Malaysia’s retail sector continues to grow in a fair, competitive, and sustainable way.
