KUALA LUMPUR: Domestic small and medium enterprises need a period of consolidation rather than another layer of costs from the upcoming Budget 2027.
Cheng & Co International Bhd group managing director Lam Kwai Soon said SMEs want to see a deliberate pause on new cost impositions on smaller businesses in 2027, while also making existing support easier to access.
“There are dozens of SME grants, funds and guarantee schemes spread across multiple ministries and agencies, yet many SME owners may not know what is available or where to begin.
“A single access point, with common eligibility criteria and decisions made within a fixed number of working days, would deliver more practical help than another headline allocation,“ he told SunBiz.
Lam pointed out that, currently, the cost of doing business has risen significantly due to the expanded Sales and Service Tax (SST) from July 2025, higher electricity tariffs, wage and Employees Provident Fund changes, e-invoicing and tariff-driven uncertainty in export markets.
“Individually, each measure may be defensible. Cumulatively, however, they have compressed margins in a segment that contributes close to 40% of GDP (gross domestic product) and almost half of national employment,“ he said.
Secondly, Lam said, the government should examine whether existing incentives sufficiently tie to measurable outcomes.
Businesses that demonstrate productivity gains, successful automation or artificial intelligence adoption, or expansion into new export markets should be rewarded accordingly, rather than incentives being based primarily on stated intentions, he added.
From a tax perspective, Lam said, there is a greater certainty and consistency in tax policy.
Businesses need sufficient consultation and clarity before new tax measures are implemented, rather than having policies revised after implementation when practical challenges emerge.
He pointed out that businesses can plan around a higher tax and cannot plan around uncertainty.
“In the space of three years, we have seen several significant tax and compliance changes, including capital gains tax, the global minimum tax, dividend tax, an expanded SST, e-invoicing, stamp duty self-assessment and carbon tax, alongside continued public discussion around the potential return of Goods and Services Tax.
“Businesses are having to navigate multiple changes, each with different timelines and requirements.
“For Budget 2027, we would like to see a clearer medium-term tax roadmap that gives businesses visibility on major tax changes and sufficient lead time to prepare before implementation,“ Lam said.
When asked about any existing taxes, tax incentives or reliefs that should be reviewed, expanded or simplified in Budget 2027, Lam said the scope of SST should be reviewed, particularly the issue of “tax-on-tax”.
He said one of the most common concerns is that SST costs can build up as they move across the supply chain.
Because SST has no system for input tax credits, service tax charged between businesses can become an additional cost that is subsequently passed on or marked up downstream, he said.
“The business-to-business (B2B) exemptions are helpful but remain relatively narrow, conditional, and can be complex to apply across different types of businesses.
“Widening genuine B2B relief could help reduce these additional costs without foregoing tax revenue at the point of final consumption,“ Lam said.
Commenting on what Budget 2027 do to reduce the tax and compliance burden on SMEs while still supporting the government’s revenue needs, Lam said the tax administration framework should better distinguish genuine errors from deliberate tax evasion.
He said a penalty framework that treats a first-time, self-corrected mistake in a similar manner to deliberate concealment is disproportionate, particularly for SMEs with more limited tax and compliance resources.
“There should also be greater flexibility for businesses facing genuine changes in their financial circumstances. For example, if a business needs to revise its tax estimate to below 85% of the preceding year’s estimate, its actual commercial circumstances should be taken into account rather than applying overly rigid requirements for supporting evidence.
“Taxpayers should also have greater flexibility to offset tax overpayments against upcoming tax instalments or other tax liabilities.
“A clear and consistent mechanism for doing so would improve cash flow for businesses while ensuring that the tax remains within the government’s revenue system. The policy should also be applied consistently rather than changing from one period to another.”.
Lam said that if given the option to recommend one tax measure to the government for Budget 2027, it would be SST reform that would broaden the relief available for genuine B2B transactions to reduce the cascading effect of service tax.
“When service tax becomes part of a business’s cost and that cost is passed down the supply chain, it can ultimately contribute to higher prices for the end consumer.
“The benefit runs three ways: It lowers the cost of doing business lower without necessarily reducing the tax rate; improve the competitiveness of Malaysian businesses; and still allow the government to collect tax on final consumption,“ Lam said.
