KUALA LUMPUR, 22 September 2025 — As Malaysia prepares its 2026 Budget, retail mall operators are urging the government to introduce the Sales and Service Tax (SST) on goods and services in malls gradually rather than implementing abrupt or sweeping changes. Their request reflects concern over rising operational costs, squeezed consumer spending, and the need for predictable regulatory transitions to avoid disrupting the retail ecosystem.
In recent submissions made ahead of Budget 2026, representatives of major shopping mall groups have emphasised that businesses are still recovering from post-pandemic disruptions. They argue that any new SST obligations—especially if introduced across all tiers of mall operations including smaller tenants—should be phased in gradually. This, they say, will allow retailers time to adjust pricing, renegotiate rental leases, and manage their supply-chain cost structures without having to absorb steep cost burdens all at once.
Mall operators have pointed out that many tenants—particularly smaller shops, independent retailers, and boutique outlets—operate on razor-thin margins. A sudden SST imposition could force them to raise prices or pass on costs to consumers, which may dampen foot traffic. Already, rising costs of utilities, maintenance, labour and logistics have eroded profitability in the sector, making the margin for error narrower. In their representations to budget planners, the mall groups argue for phased rates or possibly exemptions/reliefs for smaller tenants during the rollout period to avoid tenant exits or shuttered outlets in secondary malls.
The retail groups’ calls come at a time when consumers remain sensitive to inflation and discretionary spending is under pressure. They worry that introducing SST too aggressively could reduce dwell time in malls, lower spending per visit, and hamper the recovery of food and beverage, fashion, and lifestyle segments—all of which rely on consumer confidence and steady demand.
From a policy standpoint, the government faces a balancing act. On one hand, broader SST coverage could expand the tax base and help raise revenues—important as Malaysia seeks fiscal consolidation. On the other hand, sharp cost rises across the retail sector could have knock-on effects: layoffs, higher rents, reduced retail supply, or even mall vacancies in less affluent districts may offset revenue gains if retailers struggle or close operations.
Investors watching the retail property and consumer sectors will be monitoring how Budget 2026 addresses these dynamics. Mall developers, REITs, retail landlords and tenants will want clarity on tax thresholds, phased implementation schedules, and relief measures. The sensitivity of consumer spending to price increases means that profitability projections in retail-anchored real estate could see significant variation depending on how SST rollout is structured. Moreover, investor confidence in the retail sector will likely hinge on regulatory predictability, especially given the sector’s exposure to both domestic consumption trends and cost inflation.
Should the budget announce a gradual SST implementation, with relief or exemptions for smaller tenants, it may preserve retail stability, help avert a spike in vacancy rates, and maintain mall traffic. Conversely, a sharp SST introduction could hasten consolidation among retailers, lead to higher turnover, and place upward pressure on retail rents. As Malaysia heads into Budget 2026, the stakes for the mall sector reflect broader questions about how tax policy can be calibrated to support economic recovery without undermining the fragile gains made in consumer confidence and retail expansion.
