FMM Urges Government To Ease Business Burden, Allow SMEs To Retain More Capital For Growth

FMM In The News: BUSINESS TODAY, October 25, 2026

The Federation of Malaysian Manufacturing (FMM) has called on the government to review corporate taxation, modernise SME eligibility criteria and reduce barriers to industrial expansion, warning that access to financing alone is insufficient to help Malaysian manufacturers grow into competitive regional and global players.

While welcoming Budget 2027’s emphasis on small and medium enterprises (SMEs) and mid-tier companies, the federation stressed that businesses must be allowed to retain more of their earnings to invest in technology, expand production capacity and develop their workforce.

FMM President Jacob Lee said excessive restrictions arising from existing eligibility thresholds could discourage business expansion, particularly when growing companies lose access to government assistance despite continuing to face significant investment and operational costs.

The federation welcomed initiatives introduced by the Ministry of Investment, Trade and Industry (MITI), led by Minister Datuk Seri Johari Abdul Ghani, to strengthen SME financing, research and business development.

However, it emphasised that policy support must translate into practical improvements in the operating environment rather than merely expanding access to loans.

FMM welcomed the one-percentage-point reduction in SME corporate income tax rates under Budget 2027, which could provide savings of up to RM6,000 per eligible company.

Nevertheless, it argued that the relief was insufficient to support substantial investments in machinery, automation, technology adoption or factory expansion.

The federation urged the government to consider further reductions in SME corporate tax rates and substantially widen the income bands eligible for preferential taxation.

It said businesses require adequate retained earnings to finance expansion, undertake research and development, train employees and enter new markets.

Although loans and financing guarantees are important, FMM stressed that internal capital remains essential for companies to manage investment risks without becoming overly dependent on borrowing.

The federation also called for SME tax eligibility criteria to be aligned with the national SME definition, including removing the existing RM2.5 million paid-up capital requirement.

According to FMM, capital-intensive manufacturers should not lose access to development support simply because they have strengthened their capital base.

Allowing businesses to retain and reinvest more of their earnings could ultimately generate higher productivity, better-paying jobs and stronger companies, thereby expanding the government’s revenue base over time.

FMM also urged the government to modernise the definition of manufacturing SMEs to reflect changing business conditions.

The federation proposed raising the eligibility thresholds to companies with annual turnover of up to RM100 million or a workforce of up to 300 employees.

It argued that existing thresholds could create an unintended barrier to growth, as businesses may lose access to government support once they exceed the prescribed limits.

Such companies may still require assistance with technology upgrades, product certification, talent development and overseas market expansion.

FMM warned that abruptly withdrawing support could leave growing manufacturers without adequate resources to advance into the next stage of development.

It therefore proposed a graduated assistance framework that would allow companies transitioning from SME to mid-tier status to continue receiving appropriate support.

The objective, it said, should be to encourage SMEs to become larger, more productive Malaysian enterprises rather than create incentives for businesses to remain small.

It also acknowledged the combined RM2.1 billion support through the New Industrial Master Plan (NIMP) Fund, KWAP’s Dana Pemacu and Khazanah’s Mid-Tier Companies Fund.

However, the federation stressed that financing schemes must feature affordable terms, accessible eligibility requirements and timely disbursements.

It said government initiatives would only achieve their intended outcomes if businesses could access the funds efficiently and use them for productive investments.

To accelerate industrial modernisation, FMM reiterated its proposal for a RM1.5 billion Smart Manufacturing Support Package covering 2027 to 2030.

The proposed package comprises RM500 million for automation, RM750 million for manufacturing digitalisation and RM250 million for artificial intelligence adoption.

The federation said many SMEs continue to face high upfront costs when adopting advanced manufacturing technologies.

It recommended complementing financial assistance with enhanced capital allowances, affordable financing and fully subsidised on-site smart factory assessments.

These measures would help manufacturers identify suitable technologies, improve operational efficiency and avoid costly investment mistakes.

FMM also emphasised the need for workforce training and technical guidance to ensure that businesses could effectively implement automation and AI solutions.

Beyond technology adoption, FMM called for greater investment in research, development, innovation and commercialisation to strengthen domestic industrial capabilities.

It reiterated its proposal for a RM1 billion National Manufacturing Research and Innovation Endowment Fund, supported by contributions from both the government and industry.

The proposed fund would provide sustained financing for industry-led research, product development, prototyping, testing and pilot production.

FMM said closer collaboration between manufacturers, universities and research institutions was necessary to translate research findings into commercially viable products and Malaysian-owned technologies.

The federation also urged policymakers to give greater attention to domestic direct investment, particularly reinvestment by existing Malaysian manufacturers.

It argued that expanding local industrial capacity was just as important as attracting new foreign investments.

FMM further highlighted the importance of strengthening connections between SMEs, large Malaysian companies and multinational corporations.

The federation proposed a RM100 million National Supply Chain Resilience Fund to support local sourcing, supplier development and alternative sources of critical industrial inputs.

It said geopolitical tensions and global trade disruptions had reinforced the need for Malaysian manufacturers to develop stronger domestic supply chains.

Helping local SMEs meet international technical specifications, quality standards and certification requirements would create more opportunities for participation in regional and global supply networks.

Source of article: www.businesstoday.com.my