PETALING JAYA: SMEs are entering a “survival zone” in 2026 as the cumulative cost of regulatory compliance reaches breaking point, said Small and Medium Enterprises Association Malaysia (Samenta) national president Datuk William Ng (pic).
While 2025 saw the emergence of the “compliance economy”, he added, 2026 will see the full rollout of many of these regulatory burdens.
“Unless repealed or postponed, SMEs will have to grapple with a surge of new starting Jan 1, 2026. This include Stamp Duty Self-Assessment System, Multi-Tier Levy System for foreign workers and the preparation phase for the newly introduced sector-specific Carbon Tax,” Ng said in a statement today.
Additionally, SMEs face new costs ranging from stamp duty on employment contracts for salaries above RM3,000 to “BMW” toilet requirements for business licence renewals of food businesses.
“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,” Ng said.
Furthermore, the transition towards Extended Producer Responsibility is expected to begin this year, obligating manufacturers to fund the collection and recycling of packaging waste.
SMEs exporting to the European Union or part of European supply chains will also be caught in the Carbon Border Adjustment Mechanism, he noted.
“This surge in compliance is not unique to Malaysia. The Compliance Economy is a global phenomenon, driven by a worldwide push for supply chain transparency, the harmonisation of digital tax systems, and the synchronisation of global sustainability standards,” Ng said.
He said these new hurdles add to recently introduced rules, such as expanded worker housing requirements under Act 446, the Personal Data Protection Act requirement for data protection officers and the Occupational Safety and Health (Amendment) Act 2022, which requires OSH coordinators for SMEs with over five employees.
Ng pointed out that while SMEs are not generally required to track carbon emissions under the National Sustainability Reporting Framework (NSRF) directly, almost all who are plugged into the supply chains of large local companies and multinationals 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,” said Ng.
“Combine this with the ‘Triple Threat’ of structural margin compression, a severe liquidity squeeze, and structural low productivity means that the 10–15% net margins typically enjoyed by SMEs are being eroded by spending defensively on compliance. Most small businesses lack the specialized legal, ESG, or IT departments needed to manage these 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.”
To prevent a widespread business slowdown, Samenta calls for an urgent transition from rule-based regulation to incentive-based facilitation through the following:
☻ Establishment of an industry-led SME Transition Academy: A dedicated centre managed by the industry to produce certified OSH coordinators, data protection officers, and sustainability officers, to ensure the availability of in-house capabilities within SMEs, and bring down the costs of transition.
☻ National AI-powered ESG reporting fund: Direct funding for AI-driven tools to automate reporting in line with the NSRF and the Simplified ESG Disclosure Guide, reducing the prohibitive costs of manual compliance and the reliance on third-party consultants.
☻ A “regulatory breathing space” moratorium: A 24-month moratorium on any new costs or regulatory burdens at the national, state and local authority levels to allow SMEs to stabilise their operations.
☻ Transition to an “opt-in” system: Shifting mandatory requirements to an incentivised, opt-in system to encourage participation without penalising struggling businesses.
☻ Extend MyDigital ID to businesses: To speed up digital adoption among SMEs whilst transferring a majority of government-business interaction online.
For SMEs to survive beyond 2026, Ng said, the gap between government policies and reality on the ground must be closed.
Samenta urges 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.
