SMEs face pressure from US tariffs and SST; reforms urgently needed
The SME Association of Malaysia has issued a strong call for immediate tax reform and strategic export support, warning that rising operational costs and international trade pressures are putting thousands of local businesses at risk.
At the heart of the concern is the 19% tariff imposed on Malaysian exports to the United States, compounded by the domestic expansion of the Sales and Services Tax (SST). These twin challenges are squeezing small and medium enterprises (SMEs) already grappling with post-pandemic recovery, global inflation, and heightened competition from international players entering the Malaysian market.
“Export-oriented SMEs, particularly in key sectors like electronics, rubber products, and medical devices, are feeling the brunt of the US tariffs,” said Dr Chin Chee Seong, National President of the SME Association of Malaysia. “At the same time, the SST expansion is raising costs for a wide range of industries, without the relief of input tax credits.”
Dr Chin further highlighted that the current SST structure—particularly the absence of exemptions for transactions between businesses—results in a tax-on-tax effect along the supply chain, inflating costs and discouraging businesses from scaling or formalising.
To address these urgent issues, the association has outlined five key policy measures to be considered by the federal government:
1. Immediate Review of the SST Framework
Introduce business-to-business (B2B) exemptions for licensed manufacturers and essential service providers to avoid compounding tax effects and inflated costs.
2. Reintroduction of a Reformed Goods and Services Tax (GST)
Advocate for a GST system that incorporates input tax credits, lower compliance barriers, and faster refund mechanisms—designed to broaden the tax base without disproportionately affecting SMEs.
3. Targeted Export Promotion and Market Expansion Support
Increase government funding for export initiatives targeting high-growth sectors such as the Halal industry, and challenging markets like China and the Middle East. Support should include assistance with product localisation, branding, regulatory compliance, and market entry strategies.
4. Improve Access to Finance and Advisory Services
Enhance SME access to soft loans, digitalisation grants, and export readiness support. Fast-track approval for financial aid to those most affected by current economic headwinds.
5. Institutionalise Public-Private Dialogue Platforms
Establish regular, structured engagements between SME stakeholders and policymakers to ensure feedback-driven, timely policy responses and co-created solutions.
“SMEs are the backbone of Malaysia’s economy, but without decisive and responsive government intervention, we risk losing a significant portion of our productive base,” Dr Chin added. “Now is the time to reinforce their ability to innovate, scale, and export.”
The SME Association of Malaysia underscored the urgency of implementing stable, forward-looking economic policies to strengthen SME confidence, promote digital transformation, and support sustainable growth. With foreign firms increasingly entering local markets, Malaysian SMEs must be empowered to stay competitive not just at home, but on the global stage.
For more information, visit www.smemalaysia.org or contact the Association at [email protected].
