How did GST zeroisation boost SME growth in 2018?

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GST Zeroisation Enhanced SME Growth Through Increased Consumer Spending in 2018

The zeroisation of the Goods and Services Tax (GST) in Malaysia between June 1 and August 31, 2018, significantly stimulated consumer spending, which in turn drove the growth of Small and Medium Enterprises (SMEs), particularly within the services sector. This period of tax reduction led to a noticeable uptick in economic activity, benefiting sub-sectors such as wholesale and retail trade, food and beverages, and accommodation. The overall contribution of SMEs to Malaysia's Gross Domestic Product (GDP) increased to RM521.7 million in 2018, a growth of 38.3 per cent from the previous year, outperforming the national GDP growth rate of 4.7 per cent.
Understanding the Goods and Services Tax (GST)

The Goods and Services Tax (GST) was a broad-based consumption tax introduced in Malaysia on April 1, 2015, replacing the Sales and Service Tax (SST). Its primary purpose was to broaden the tax base and increase government revenue by taxing the supply of most goods and services at each stage of the economic chain, with businesses able to claim back the GST they paid on inputs. This system aimed to be more efficient and transparent than the previous SST regime, which had a narrower base and was applied at different points in the supply chain.
Impact of GST Zeroisation on Consumer Behaviour

The decision to zeroise the GST for a three-month period in 2018 had a direct and immediate impact on consumer spending. With the removal of this consumption tax, the prices of many goods and services effectively decreased, making them more affordable for the public. This price advantage incentivised consumers to increase their purchasing activity, leading to a surge in demand across various retail and service-oriented businesses. This boost in consumer confidence and expenditure is a well-documented phenomenon in economics, often observed when direct taxes on consumption are temporarily lowered.
SME Sector Performance in 2018

The services sector, which includes wholesale and retail trade, food and beverages, and accommodation, experienced its highest growth pace since 2014 in 2018, expanding by 8.1 per cent. This performance was largely attributed to the enhanced consumer spending during the GST zeroisation period. Beyond these key sub-sectors, growth was also supported by finance, insurance, real estate, business services, transportation, storage, information, and communication sub-sectors. The manufacturing sector for SMEs also saw a respectable expansion of 5.5 per cent, driven by specific product categories.
Broader Economic Context and SME Targets

In 2018, the SME sector expanded by 6.2 per cent, a rate slightly above its long-term average growth of 6.0 per cent recorded between 2001 and 2017. This growth trajectory placed SMEs on track to achieve their target of contributing 41 per cent to GDP by 2020, as outlined in the Dasar Keusahawanan Nasional 2030 (National Entrepreneurship Policy 2030). This policy framework also sets ambitious goals for SMEs to contribute 50 per cent to overall GDP and 30 per cent to total exports by 2030, with strategies focused on digitalisation, supply chain integration, and technological adoption being implemented to support these aims.

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How did GST zeroisation boost SME growth in 2018?

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