Minimum wage hike: SMEs need time to adjust, says assoc

KUCHING (Oct 22): The government’s move to increase the minimum monthly wage from RM1,500 to RM1,700, effective next February, could pose significant challenges if there were no substantial consultations with the employers.

In expressing this concern, Sarawak Entrepreneur Association (SEA) president Nizam Khalyd said while the upcoming increment reflected the government’s commitment towards improving the livelihood of workers, the entrepreneurial community, particularly those from the small-medium enterprise (SMEs) segment would need time to plan and manage costs effectively.

“A sudden wage hike, implemented without proper engagement and support mechanisms for businesses, could lead to increased operational costs.

“To avoid raising prices of products and services, which could hurt consumers, it is important to gradually increase the minimum wage and provide support to businesses in order for the policies can be implemented effectively,” he said in a statement.

Nizam said a well-thought-out phased approach would allow businesses to adjust their cost structures, improve productivity, and implement technological advancements.

“This would ensure a smoother transition to higher wages without destabilising the economy,” he said.

Prime Minister Datuk Seri Anwar Ibrahim, in tabling Budget 2025 on Oct 18, had announced the increment of minimum wage to RM1,700 per month with effect from Feb 1 next year, as well as from Aug 1 for employers or small entrepreneurs with fewer than five employees.

Nizam also touched on the government’s plan to expand the scope of Sales and Service Tax (SST) from May 1 onwards next year, which he viewed as having the potential to generate additional revenue for the country’s fiscal framework.

“However, businesses in Sarawak, especially those in rural areas, may face significant challenges due to increased costs arising from the ‘tax-on-tax’ effect, which could impact prices throughout the supply chain.

“In sectors such as hospitality and tourism, where the cost of goods is already a major concern, businesses may encounter further financial strain, potentially reducing their competitiveness,” he said.

Nizam said it was therefore crucial that the government consider providing targeted support to help these businesses navigate the challenges that could arise, and to mitigate any negative impact on local industries.

On the government’s intention to rationalise subsidies for RON95 petrol, he said it was crucial for the government to engage with key industry players to find ways to mitigate the impact of these changes on businesses.

“While this reform is essential for fiscal sustainability, it also requires careful planning and execution. For example, businesses that rely heavily on transportation and logistics could face higher operating costs, which may then trickle down to consumers through increased prices of goods and services.

“Subsidies should be restructured in a way that balances fiscal responsibility with economic growth, ensuring that companies, particularly SMEs, are not disproportionately affected.”

Adding on, Nizam hailed the budget allocation of RM120 billion for public and private infrastructure projects as ‘a critical step towards reducing regional inequalities and fostering balanced development’, particularly with Sarawak and Sabah having been allocated RM5.9 billion and RM6.7 billion, respectively.

“For entrepreneurs in Sarawak, the focus on flood mitigation and road expansions is a welcome move that will improve connectivity and reduce the costs associated with logistical challenges in the region. These infrastructure improvements will also create opportunities for local businesses to participate in regional development projects, boosting employment and enhancing economic resilience.

“However, it is essential that the government ensures these funds are disbursed efficiently and transparently to avoid delays in project implementation, which could hinder economic progress.”

Nizam also pointed out that while Anwar’s Budget 2025 had laid the groundwork for a more resilient and equitable Malaysia, with significant focus on fiscal responsibility, regional development and social equity, businesses would still need more time and clearer, long-term roadmap to adjust to the changes proposed.

“As the government works towards increasing the minimum wage, restructuring subsidies and reforming SSTs, it is crucial for them to consider the potential impact to local businesses especially the SMEs.

“Engaging with the business community in ongoing dialogues will ensure the employers of SMEs are consulted and being given necessary support to manage these transitions,” he said.

“For Sarawak and Malaysia as a whole to thrive, we need a roadmap that balances immediate needs with long-term economic sustainability.”