FMM pushes for 3pct GST return

FMM In The News: KLSESCREENER, September 3, 2026

KUALA LUMPUR: The Federation of Malaysian Manufacturing (FMM) has renewed its call for the return of the Goods and Services Tax (GST) at an introductory rate of 3.0 per cent, arguing that a lower consumption tax would ease the burden on businesses while strengthening Malaysia's industrial competitiveness.

FMM president Jacob Lee Chor Kok said the previous 6.0 per cent rate had placed a significant burden on businesses and consumers, making a lower 3.0 per cent rate a more reasonable starting point.

"We felt that a reasonable rate of three per cent would be more acceptable to the market. With the reduced GST burden of three per cent, I think the industry would have more capacity to undertake more productive manufacturing activities," Lee said at a press conference, here on Thursday.

The proposal forms part of FMM's wishlist for the 2027 Budgey and includes safeguards for essential consumption, simplified compliance for small and medium enterprises (SMEs) and reliable refund mechanisms.

FMM said a lower-rate GST could help cost pressures and competitiveness challenges faced by manufacturers under the current Sales and Services Tax (SST) system.

Citing FMM's first-half 2026 Business Conditions Survey on the impact of the current SST system, he said 60 per cent of manufacturers reported higher production costs from embedded supply chain taxes, while 59 per cent cited unrecoverable taxes on business inputs.

Some 45 per cent of manufacturers faced compliance and administrative burdens, while 42 per cent reported uncertainty over the scope, exemptions and interpretation of the SST. Another 34 per cent reported higher output costs, 32 per cent cited reduced price competitiveness, and 22 per cent faced cash flow pressures.

"SST is adding to manufacturers' costs through and unrecoverable taxes, while administrative complexity and uncertainty compound the burden. The findings highlight the need to address tax cascading and simplify compliance to protect competitiveness and cash flow," Lee said.

Following the government's indication that it is open to studying selected GST features within the SST, FMM also recommended systematic input tax credits or offsets.

It said effective relief for essential goods and exports, along with prompt refunds, would help reduce tax cascading, embedded production costs and cash flow pressures.

Beyond tax reform, FMM called for the 2027 Budget to focus on expanding Malaysia's productive capacity by enabling businesses, particularly SMEs, to retain and reinvest more capital in technology, innovation, talent development and domestic supply chains.

Its recommendations are structured around four priorities, which include competitive industries, domestic industrial development, a highly skilled workforce, and energy transition and circular economy adoption.

Under its competitiveness agenda, FMM proposed an RM1.5 billion smart manufacturing support package for 2027 to 2030, comprising RM500 million for automation, RM750 million for manufacturing digitalisation and RM250 million for artificial intelligence adoption.

It also proposed an RM1 billion manufacturing research and innovation endowment fund, jointly funded by the government and industry, alongside more accessible research and development incentives.

To strengthen domestic industrial capabilities, FMM called for an RM100 million national supply chain resilience fund to help manufacturers secure critical inputs, qualify alternative suppliers and diversify supply sources.

It also proposed expanding export incentives and market development support, updating the SME manufacturing definition to companies with annual turnover of up to RM100 million and/or up to 300 employees.

On talent development, FMM proposed channelling 60 per cent of foreign-worker levy proceeds into skills development and 40 per cent into automation, supported by RM100 million and RM500 million in seed funding, respectively.

It also called for greater industry-led technical and vocational education and training, teaching factories and apprenticeships, including a 50 per cent apprenticeship wage subsidy capped at RM1,000 a month for 12 months.

Source of article: www.klsescreener.com