Empowering SME Resilience Through ESG and Innovation

By Dr Nor Shaipah Abdul Wahab

Budget 2026, themed “Belanjawan Rakyat”, introduces a comprehensive package of tax reforms and incentives aimed at strengthening the resilience and competitiveness of Malaysia’s small and medium enterprises (SMEs). The budget reflects the government’s commitment to inclusive growth, sustainability, and digital transformation under the MADANI framework.

A key highlight is the full implementation of the Outcome-Based Incentive Framework, which rewards businesses based on measurable impact and transparent reporting. This approach encourages SMEs to invest in innovation, job creation, and Environmental, Social, and Governance (ESG)-aligned practices. For instance, SMEs adopting certified green technologies can benefit from a 100% Green Investment Tax Allowance (GITA), provided the products are locally manufactured and certified under the MyHIJAU Mark.

To enhance digital resilience, Budget 2026 offers a 50 percent additional tax deduction for Artificial intelligence (AI) and cybersecurity training accredited by the National AI Council for Industry (NAICI) under the MyMahir initiative. This initiative enables SMEs to upskill their workforce and strengthen operational security, positioning themselves for success in a technology-driven economy.

In advancing social inclusion, the budget extends tax deductions for SMEs hiring vulnerable groups, including ex-offenders, recovering addicts, and senior citizens until 2030. Companies sponsoring care worker training for non-employees can also claim double deductions, fostering a more inclusive and compassionate workforce while supporting quality care for children, the elderly, and persons with disabilities.

SME Resilience

Agribusiness SMEs benefit from expanded automation incentives, including full tax exemptions for food security projects and closed-house poultry systems. These measures enhance productivity, ensure food security, and strengthen supply chain stability, crucial for long-term resilience.

Meanwhile, tourism-related SMEs are eligible for deductions of up to RM500,000 for refurbishments and 100% exemptions on increased income from inbound packages. These incentives aim to revitalise domestic tourism ahead of Visit Malaysia Year 2026.

Budget 2026 also simplifies compliance through e-filing mandates, enhanced refund mechanisms, and broader digitalisation of tax processes, reducing administrative burdens and enabling SMEs to focus on growth. Contributions to community initiatives such as Kampung Angkat and Sekolah Angkat MADANI are now tax-deductible, reinforcing the role of SMEs in nation-building.

In essence, Budget 2026 equips SMEs with the tools to build resilience, embrace ESG principles, and contribute meaningfully to Malaysia’s sustainable and inclusive development agenda.

Associate Professor Dr Nor Shaipah Abdul Wahab is the Head of the School of Accounting and Finance, Faculty of Business and Law, Taylor’s University.

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