Samenta: SMEs enter ‘survival zone’ as compliance costs peak

KUCHING (Jan 5): Small and medium enterprises (SMEs) are entering a “survival zone” this year as the cumulative cost of regulatory compliance reaches a breaking point, said Datuk William Ng.

The Small and Medium Enterprises Association Malaysia (Samenta) president said that while last year saw the emergence of the “compliance economy”, this year will see the full roll-out of many of these regulatory burdens.

“Unless repealed or postponed, SMEs will have to grapple with a surge of new (requirements) starting Jan 1, 2026. These include Stamp Duty Self-Assessment System (STSDS), Multi-Tier Levy System (MTLS) for foreign workers and the preparation phase for the newly introduced sector-specific Carbon Tax,” he said in a statement.

Additionally, Ng said SMEs face new costs ranging from stamp duty on employment contracts for salaries above RM3,000 to ‘BMW’ (Bersih, Menawan, Wangi – clean, attractive, pleasant-smelling) toilet requirements for food business licence renewals.

“The digital burden also intensifies with mandatory e-invoicing for SMEs with revenue above RM1 million and the new prohibition on consolidated e-invoices for high value transactions.

“Furthermore, the transitions toward Extended Producer Responsibility (EPR) is expected to begin this year, obligating manufacturers to fund the collection and recycling of packaging waste.

“SMEs exporting to the EU or part of European supply chains will also be caught in the Carbon Border Adjustment Mechanism (CBAM) that goes live on Jan 1,” he said in a statement.

According to Ng, these new hurdles add to recently introduced rules, such as expanded worker housing requirements under the Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990 (Act 446), the Personal Data Protection Act (PDPA) requirement for Data Protection Officers, and the Occupational Safety and Health (OSH) (Amendment) Act 2022, which requires OSH coordinators for SMEs with over five employees.

While SMEs are not generally required to track carbon emissions under the National Sustainability Reporting Framework (NSRF) directly, he pointed out that almost all who are plugged into the supply chains of large local companies (LLCs) and multinationals (MNCs) are required by extension to do so.

“This will leave SMEs who are unprepared in a limbo; caught between the inability to fund necessary transitions and the risk of being excluded from the formal economy and global supply chains entirely.

“Combine this with the ‘Triple Threat’ of structural margin compression, a severe liquidity squeeze and structural low productivity means that the 10 to 15 per cent net margins typically enjoyed by SMEs are being eroded by spending defensively on compliance,” he explained.

He added that most small businesses lack the specialised legal, Environmental, Social and Governance (EGS), or IT departments needed to manage overlapping regulatory timelines, leading to a gap between the government’s high-level policy goals and the practical reality of implementation on the ground.

“These are money that could have been spent offensively to grow their businesses,” he opined.

To prevent a widespread business slowdown, Ng called for an urgent transition from rule-based regulation to incentive-based facilitation.

He proposed establishing an Industry-Led SME Transition Academy, a dedicated centre managed by the industry to produce certified OSH coordinators, data protection officers and sustainability Ooficers, to ensure the availability of in-house capabilities within SMEs, and bring down the costs of transition.

He also suggested to set up a National AI-Powered ESG Reporting Fund to provide direct funding for AI-driven tools to automate reporting in line with the NSRF and the Simplified ESG Disclosure Guide (SEDG), reducing prohibitive costs of manual compliance and the reliance on third-party consultants.

A 24-month ‘Regulatory Breathing Space’ Moratorium on any new costs or regulatory burdens at the national, state and local authority levels is required to allow SMEs to stabilise their operations, he said.

Ng also proposed shifting mandatory requirements to an incentivised, opt-in system to encourage participation without penalising struggling businesses.

He said MyDigital ID should also be extended to businesses to speed up digital adoption among SMEs while transferring a majority of government-business interaction online.

“For SMEs to survive beyond 2026, the gap between government policies and reality on the ground must be closed.

“We urge the government to act as a strategic partner in this transition, ensuring that compliance becomes a catalyst for competitiveness rather than a barrier to business survival,” he added.