KUALA LUMPUR: The government should focus on providing targeted financial assistance, such as grants and low-interest loans, specifically for small and medium enterprises in Budget 2026.
Additionally, further tax incentives for SMEs that invest in technology and innovation can help them win their fair share of the market.
Ernst & Young Tax Consultants Sdn Bhd Malaysia private tax leader and partner Bernard Yap said creating a supportive regulatory environment that reduces bureaucratic hurdles will also be essential for SME growth.
In addition, the government can consider special deductions for employers to invest in providing additional training or reskilling their employees to be proficient in the latest technological solutions.
Yap said SMEs are the backbone of Malaysia’s economy, contributing approximately 38% to the gross domestic product (GDP) and employing around 47.8% of the workforce. The sector plays a crucial role in driving innovation, creating jobs and fostering economic growth.
The diversity within the SME sector, spanning manufacturing and services, enables them to adapt to changing market demands and make significant contributions to the overall economic landscape.
“While some SMEs have begun preparing for the impact of tariffs, many still face challenges due to limited resources and knowledge.
“SMEs can collaborate with industry associations to gain valuable insights and support in navigating tariff-related challenges.
“To reduce the effects of tariffs, SMEs can adopt strategies such as diversifying their supply chains, exploring new markets and investing in technology to improve efficiency,” Yap said.
He noted that the introduction of e-invoicing presents both opportunities and challenges for SMEs as many may struggle with the initial setup costs and the need for digital literacy.
To transition effectively, SMEs should invest in training their staff and consider partnering with technology providers who can offer affordable solutions.
“The government can play a role by providing incentives for SMEs to adopt e-invoicing systems and has already offered certain tax benefits to support these efforts.
From an opportunity standpoint, he added, embracing e-invoicing would enable SMEs to accelerate their overall digitalisation agenda and help enhance the use of technology in the management and administration of their businesses.
“Furthermore, the vocational education sector should start including technology literacy in their curriculums to equip the new entrants into the workforce with the necessary knowledge to handle an ever-changing working environment,” Yap said.
Moving on, Yap said the Ministry of Finance (MoF) and the Inland Revenue Board (IRB) should continue to develop policies that recognise the unique challenges faced by SMEs, particularly in terms of compliance costs and access to financing.
This could include simplified tax filing processes, tailored tax incentives and dedicated support programmes that align with the objectives of the 13th Malaysia Plan, which emphasises sustainability, resilience and shared prosperity.
“The authorities should ensure that representatives from SMEs are invited to participate in discussions and focus groups on proposed economic policies, as regulators need to understand the specific issues or pain points faced by SMEs, which are very different from those faced by government-linked companies, multinational corporations and public-listed companies,“ Yap said.
When asked about how SMEs leverage artificial intelligence (AI) and digital technologies to improve their operations, Yap said SMEs can utilise AI and digital technologies to streamline operations, enhance customer engagement, and improve decision-making, which will free up the time of business owners and employees to focus on innovation and expansion.
“However, they need support in terms of access to affordable technology solutions and training programmes.
“Government initiatives that promote digital literacy and provide funding for technology adoption and training will be crucial in enabling SMEs to thrive in a digital economy,“ said Yap.
He added that an SME’s journey to embrace AI and digital technology will differ from that of mature markets and industries, so understanding the type of support that SMEs need and educating them about the benefits will be crucial. “We have seen SMES naturally adopting e-wallets and online trading during the era of Covid-19 due to challenging operational and business environments, so there is certainly precedents of SMEs embracing technology,“ Yap said.
The outlook for SMEs in Malaysia is cautiously optimistic, he said. With the right support from the government and a focus on innovation, SMEs can improve their competitiveness and adapt to changing market conditions.
“The 13th Malaysia Plan emphasises the importance of digital transformation, which presents an opportunity for SMEs to innovate and grow. Talent employment will be the biggest contribution from the SMEs, and as such, the continuous learning and reskilling of the SME workforce must not be neglected,“ Yap said.