Rising minimum wage, tobacco display ban will drive up operating costs

KUALA LUMPUR: An advocacy group dedicated to protecting the growth of businesses and industries has expressed its apprehension over recent government policies that have burdened and cost businesses.

Advokasi Perusahaan dan Industri (API) cited the Control of Smoking Products for Public Health Act 2024 (Act 852) as the most controversial regulation – the display ban on all tobacco and vape products in retail outlets, set to take effect by April 1, 2025.

API managing director Datuk Fazli Nordin said while protecting public health is commendable, the negative economic consequences of a display ban could far outweigh any assumed benefits.

“The display ban will force expensive compliance burdens on retail businesses, particularly small and medium-sized enterprises (SMEs).

“Local retailers must bear the additional cost of installing closed cabinets or other storage solutions to comply with new regulations,“ he said in a statement.

Fazli said the Federation of Sundry Goods Merchants Association of Malaysia has already voiced its concerns, sharing that the display ban could cost retailers up to RM300 million.

“This underscores the very real threat the display ban will have on local businesses, particularly SMEs,“ Fazli said.

The administrative and logistical challenges of enforcing the display ban will increase operational costs, squeezing the margins of businesses struggling with the current challenging economic landscape.

API also worries about how new regulations will disproportionately affect smaller retail outlets.

Many businesses, especially in rural areas, almost certainly will not be able to afford the costly adjustments required to hide tobacco and vape products from public view.

API also warns that Act 852 could lead to job losses in retail, wholesale, and manufacturing sectors that depend on selling tobacco and vape products.

“As businesses struggle with compliance costs and competing illegal cigarette sales, we anticipate potential downsizing, closures, and a resulting economic downturn within these sectors.

“Soon after the Ministry of Health (MOH) released a new regulation on a display ban for tobacco and vape products, the Prime Minister announced an increase of minimum wage from RM1,500 to RM1,700, which was also set to take effect in 2025.

“These decisions by the government take no consideration to SMEs and businesses in rural areas,“ he said.

Fazli added that the increase in the minimum wage will cause businesses to face tremendous labour cost rises, which will be hard to mitigate for SMEs and businesses in rural areas.

“That is approximately a 13% increase, and the operating expenditure for businesses will increase. Businesses already have to deal with lower consumer sentiments and the rising cost of doing business after removing diesel subsidies earlier this year.

“The additional operating expenditure will burden the businesses, especially the SMEs and businesses in rural areas.

“While the recent policies made by the government have good intentions, they fail to consider the on-ground impact on businesses.

“The unintended economic consequences of these measures can put struggling small businesses at risk.

“We urge the government to reassess these policies to avoid burdening the businesses. A potential solution is to look at how subsidies can be provided to businesses or a longer timeframe before implementation to soften their impact,“ Fazli said.