The government will introduce a performance-based incentive system for small and medium enterprises (SMEs) by 2016 to grow the sector nationwide, says Datuk Seri Najib Razak.

The Prime Minister said the incentives, which could include tax exemption, transport rebates and bank loans, would be based on criteria such as productivity, export value and job creation.

“All these (incentives) are still at the proposal stage. We have to look into many issues, including the requirements. We will address it in a more comprehensive way. You can expect better incentives for SMEs from 2016 onwards,” he told reporters after chairing the 18th SME Development Council meeting at the
Finance Ministry here Thursday.

Also present were International Trade and Industry Minister Datuk Seri Mustapa Mohamed and SME Corporation CEO Datuk Hafsah Hashim.

Najib, who is also Finance Minister, said SMEs should leverage on technology application and business processes, with their growth driven by productivity and innovation rather than by cheap imported labour.

The premier pointed out that SMEs' contribution to gross domestic product (GDP) grew an encouraging 13.6 percent last year, on strong domestic demand and a redefinition of SMEs which came into effect in January last year, putting some 8,000 large companies into the SME category.

“SMEs' contribution to GDP is expected to sustain at between six and seven percent this year," he said, adding the share rose from 29.4 percent in 2005 to 35.9 percent last year, with the target remaining at 41 percent by 2020.

Najib said the SME Development Council is also urging SMEs to take advantage of the ASEAN Economic Community (AEC) so that more could become export-ready.

“SMEs' share of exports stands at 17 percent, and we want to increase it to 23 percent by 2020,” he said.