MALAYSIA will introduce a carbon tax next year, targeting high-emission industries such as iron, steel and energy - a move that could ripple through the entire supply chain and affect small and medium enterprises (SMEs).
Malaysia is set to introduce a carbon tax in 2026, initially targeting high-emission industries like iron, steel, and energy. This move is partly driven by the European Union's Carbon Border Adjustment Mechanism (CBAM), which will impose costs on carbon-intensive imports unless a comparable carbon price has been paid in their country of origin. While the tax directly targets large emitters, the increased costs for energy and materials are expected to ripple through the entire supply chain, indirectly impacting Small and Medium Enterprises (SMEs) that lack the financial and technical resources to adapt.
There are significant concerns that the carbon tax could become a severe compliance burden for SMEs, threatening their survival by eroding already thin profit margins. Industry groups warn that without substantial support, the tax will be seen as a punitive measure rather than a transformative one. To prevent this, they are calling for a phased implementation, exemptions for micro and small businesses, and targeted support measures such as tax incentives, capacity-building programs, and better access to financing for green technology.
Whether the carbon tax becomes a mere burden or a springboard for transformation hinges on the policy's final design and the government's commitment to a "just transition". If implemented with robust support for SMEs, including grants and incentives for adopting low-carbon technologies, it could catalyse innovation, reduce long-term operating costs, and enhance Malaysia's economic competitiveness. The government is encouraged to use revenue from the tax to fund these support measures, ensuring the policy drives both environmental responsibility and inclusive economic growth.
