Kuala Lumpur, 19 September 2025 – The Malaysia Retail Chain Association (MRCA), representing over 550 retailers with over 40,000 outlets, and the Malaysia Shopping Malls Association (PPKM), with more than 733 member malls, jointly call for review and adjustment to the 8% Service Tax (SST) on commercial property rentals and leasing in the upcoming Budget 2026.
Both associations urge the Government, ahead of Budget 2026, to phase in the SST on rental and leasing by reducing the rate to 4% in 2026 and gradually increasing it to 8% over the next 10 years. This calibrated approach is crucial to give businesses and consumers sufficient time to adjust, while still enabling the Government to achieve its fiscal goals in line with sustainable growth and shared prosperity.
At the same time, the industry strongly recommends reducing the SST on construction works from 6% to 3%. Refurbishment every 2–3 years is a compulsory requirement under tenancy agreements and a major cost for retailers. Lowering this tax would ease the burden on businesses while ensuring malls remain fresh, attractive, and competitive, especially as Malaysia prepares to welcome international visitors in the upcoming Visit Malaysia 2026.
The financial impact of the SST on tenancy is significant. A recent survey conducted by PPKM shows that with average rentals of RM7 to RM8 per square foot per month and a nationwide net lettable area of 196.2 million square feet, retailers of Malaysia are expected to face an additional RM1.3 to RM1.5 billion in taxes each year.
By comparison, normal rent increases average about 5% every two to three years. The 8% SST is immediate and nearly double this pace, creating a sudden cost shock that fundamentally changes the economics of operating in Malaysian malls. Without careful policy adjustments, the retail sector, one of Malaysia’s key economic engines, could be seriously weakened.
A clearer guidance on taxable components and continued monitoring of inflationary impacts would also help ensure that the policy supports both fiscal objectives and the long-term health of the retail ecosystem.
Squeezed From All Sides
For retailers, the new 8% SST comes on top of rising staff expenses. These include the higher minimum wage of RM1,700 implemented in February this year, mandatory EPF contributions for foreign workers starting October 2025, and the increase in the EIS/SOCSO wage ceiling from RM5,000 to RM6,000 since last year. On top of that, U.S. tariff measures on selected imports are expected to push up the cost of goods such as apparel, food ingredients and electronics. Taken together, these pressures are squeezing profit margins, dampening growth plans, and could even reduce corporate tax contributions over time.
Mall operators are equally strained. The new SST is estimated to add 15 to 18% to our current operating costs, while a PPKM–Stratos Pinnacle survey already indicates a 27% gap between operating expenses and recoverable charges. Faced with this burden, operators may have little choice but to reduce tenant incentives, delay capital improvements, or pass costs onto tenants, raising risks to tenant retention, mall competitiveness, and the long-term vibrancy of the retail sector.
Consumers are also likely to bear the burden if costs are passed on. The additional RM1.3 to RM1.5 billion in taxes represents about 0.2–0.4% of Malaysia’s total retail sales of RM764.9 billion in 2024, pointing to upward pressure on prices. The expansion of SST to certain imported items, including seafood staples such as salmon, cod, and king crab, further compounds pressure on household budgets and weakens consumer sentiment.
The retail industry reiterates its support for the Government’s fiscal objectives but stresses that the implementation of new measures must be consistent with the Madani vision of sustainability, inclusivity, and the well-being of the rakyat. A phased and balanced approach under Budget 2026 will not only safeguard Malaysia’s retail competitiveness but also protect jobs, preserve consumer purchasing power, and ensure that growth is achieved in a fair and sustainable manner.
This media statement is jointly issued by Malaysia Retail Chain Association (MRCA) and Persatuan Pengurusan Kompleks Malaysia (PPK Malaysia or Malaysia Shopping Malls Association).