PETALING JAYA: Malaysia’s plan to exempt businesses with annual sales below RM50 million from the RM2,000 minimum wage could discourage expansion and investment, undermining efforts to raise productivity, an economist has warned.
Centre for Market Education CEO Dr Carmelo Ferlito said the exemption proposed under Budget 2027 could penalise businesses that grew beyond the threshold, as they would face higher wage costs while potentially losing access to small and medium enterprise (SME) tax rates.
“A business approaching RM50 million in sales now faces a higher wage bill on top of losing SME tax rates.
“That discourages exactly the scaling-up Malaysia needs, and it encourages companies to split up or under-report sales,” he said.
Under Budget 2027, the minimum wage will rise from RM1,700 to RM2,000 in June 2027.
Micro, small and medium enterprises with annual sales below RM50 million will be exempted to give them time to adjust.
Ferlito said the arrangement could discourage smaller businesses from expanding and investing in technology, worker training and better-paying jobs once they approached the sales threshold.
He warned that encouraging firms to remain small would work against Malaysia’s ambition to become a high-income economy.
“The real long-term risk of this policy is different. It encourages firms to stay small, which is exactly the opposite of what should be done if we want to get higher wages.”
Ferlito argued that Malaysia’s persistent low-wage problem stemmed primarily from insufficient capital investment rather than a lack of statutory wage requirements.
“The exemption does not create the low-wage trap. Low capital per worker does, and that comes from the cost of investing.”
He said businesses would be more likely to adopt machinery, improve workers’ skills and raise wages when investment became financially viable rather than simply in response to government-mandated pay increases.
He also cited changing foreign labour policies, high compliance costs, complex taxation and extensive state involvement as obstacles to private investment.
“A country does not become high-income by legislating wages. It becomes high-income by accumulating capital and letting entrepreneurs compete,” he said.
Ferlito called for the statutory minimum wage to be abolished, arguing that wages should reflect differences in productivity across industries, regions and businesses.
He proposed reducing business taxes and compliance costs, investing more in skills and machinery, and providing targeted, government-funded cash assistance to low-income workers.
If abolishing the minimum wage was politically unfeasible, he suggested retaining the existing RM1,700 rate without exemptions to maintain a uniform wage floor.
“The biggest risk of proceeding as announced is that Malaysia institutionalises a growth cliff, a two-tier labour market and permanent policy uncertainty.”
