Rising overheads and weaker café and restaurant sales underline calls for a pause on tax increases and practical support for small F&B operators.
KUALA LUMPUR, 1 October 2026 – As food and beverage (F&B) operators face higher overheads, intense competition and more cautious consumer spending, the Malaysia Singapore Coffee Shop Proprietors’ General Association is calling on the Government to align the Sales and Service Tax (SST) rate for alcoholic beverages with that of food and other beverages, and to remove the most recent excise duty increase on beer imposed in the previous Budget.
The F&B sector and the value chains it supports make a meaningful contribution to the national economy. According to the 2025 Economic Impact Assessment by the Confederation of Malaysian Brewers Berhad (CMBB), the brewing industry alone generated an estimated annual average of RM3.3 billion in tax revenue and supported an average of 52,400 jobs annually. These are livelihoods and government revenues that depend, in part, on a sustainable operating environment for licensed F&B businesses.
For small F&B operators, keeping prices affordable while covering rising expenses is becoming increasingly difficult. Recent sales figures reflect the difficult trading environment. Independent retail research firm Retail Group Malaysia reported a 4.6% year-on-year decline in café and restaurant sales in the first quarter of 2026, the category’s first contraction in nearly three years. Without relief from further cost pressures, more businesses risk closure, putting jobs and community livelihoods at stake.
For many traditional coffee shops licensed to sell beer, this caution is also being felt in beverage sales. As customers cut back on discretionary spending, F&B operators are seeing softer beer demand, affecting an important source of income that contributes towards everyday business expenses such as rent, wages and utilities. These pressures come as some F&B operators are still working to recover losses incurred during the pandemic. According to the Association, businesses experienced only a short period of stronger consumer spending after restrictions eased, which was not enough to make up for losses accumulated during the pandemic years. Since then, rising rental and other operating costs have continued to weigh on businesses, leaving many with little capacity to reinvest or grow.
The Association’s Vice President, Keu Kok Meng, cited examples in Petaling Jaya where monthly shop rents had doubled since 2024, from RM6,000 to RM12,000. Such increases on lease renewal can put considerable pressure on small businesses, even in areas where footfall remains strong.
Behind these figures are real livelihoods. Many coffee shops are family-run operations, where owners work alongside long-serving staff who depend on the business staying open. When costs rise faster than income, operators are left choosing between cutting workers’ hours, reducing headcount or shutting their doors. The Association noted that some operators in its network have already made the difficult decision to close, while others continue to trade at diminishing returns.
“A busy street does not mean every coffee shop is doing well. Customers have more choices, and their spending is spread across more businesses. Meanwhile, owners still have to pay rent, wages and suppliers. There is only so much they can absorb before having to review their prices,” said Keu Kok Meng, who is also Honorary Secretary of the Petaling Jaya Coffeeshop Association (PJCA).
An indicative cost breakdown shared by Mr. William Lee, owner of Yilo Group and President of Persatuan Pemilik Restoran dan Bistro Malaysia (PPRB), shows how little room some operators have to absorb further increases. He said in some cases the cost of goods can now account for around 40% of revenue, followed by staff costs at 20%, rent at 15%, utilities at 10%, marketing and promotions at 10%, and licensing and other operating expenses at a further 10%. Together, these costs can amount to around 105% of revenue, meaning some businesses may already be operating at a loss before any further increases. He added that softer consumer spending is compounding the pressure, limiting operators’ ability to pass higher costs on through price increases without risking a further decline in customer traffic and spending.
“When beer sales fall, F&B owners also feel the impact on their overall earnings. Their everyday expenses still have to be paid. Further duty increases will translate into higher purchase costs, leaving operators with another difficult decision: absorb the increase and earn less, or raise prices and risk losing more sales,” said Keu Kok Meng, echoing these concerns.
The Association also raised concerns about competition from illicit beer. It said some illicit products can be sold at prices up to 50% lower than legitimate beer, making it harder for licensed businesses that purchase through legitimate channels and comply with taxes and regulations to compete on price. With legitimate beer demand already under pressure, the Association cautioned that a wider price gap could further divert spending away from compliant outlets, undermining government tax collections and the livelihoods of workers across the legitimate supply chain.
The MSCSPGA therefore called for a reduction in excise duties alongside increased enforcement against illicit trade to support licensed businesses and the wider legitimate distribution network. The Association also said greater tax stability would provide more certainty across the legitimate beer value chain, including distributors, suppliers and retailers connected to licensed outlets.
Reflecting these concerns, the Association hopes Budget 2027 will take a more holistic approach to the pressures facing smaller businesses across the F&B value chain.
The Association’s proposals include removing the last alcohol excise duty imposition, lowering the service tax rate from 8% to 6% to be in line with food and other beverages, avoiding further SST increases or scope expansion affecting F&B businesses. Beyond taxation, the Association called for future wage adjustments to be phased in with consideration for regional living costs, local trading conditions and businesses’ capacity to adapt.
In particular, F&B businesses and MSMEs operate on thin margins with limited ability to absorb drastic cost increases. Any sharp rise in wage costs would likely trigger a corresponding shock in consumer prices, as operators would have little choice but to pass the burden on. Early consultation, clear guidance and sufficient transition periods would help F&B operators prepare.
“We support efforts to improve incomes and strengthen the economy. For small businesses to play their part, they need greater certainty over their costs. We hope Budget 2027 will give F&B operators room to sustain their businesses, retain workers and continue serving their communities,” added Keu Kok Meng.
The decisions made in Budget 2027 will have real consequences for the small businesses, workers and communities that make up Malaysia’s F&B sector. With policy stability and effective enforcement, the F&B sector can continue investing, employing Malaysians and contributing to economic growth.
