The National President of the SME Association of Malaysia, Dr Chin Chee Seong, said in a statement that while LHDN had announced a one-year penalty waiver for non-payment of CP500 for the year, the measure did not address the core issue.
“The key concern is not about penalties, but whether the policy design itself is appropriate, fair, and proportionate,” he said.
Dr Chin explained that the CP500 mechanism had originally been introduced to facilitate advance tax collection from taxpayers whose primary income was not derived from employment, such as business owners, landlords, and full-time professionals. Such income, he noted, was typically substantial, recurring, and not subject to withholding tax.
“Applying CP500 to salaried individuals who already fulfil the bulk of their tax obligations through PCB creates an additional and disproportionate prepayment burden, further exacerbating cash-flow pressures and administrative complexity,” he said.
He added that, in practice, extending CP500 to individuals with small, incidental, or irregular side income — including senior retirees who occasionally provided advisory or consultancy services after retirement — often led to inaccurate income estimation, increased compliance difficulties, and unnecessary financial strain. Many retirees, he said, no longer enjoyed a stable monthly income and instead relied on sporadic engagements that were unpredictable in both timing and value, making advance tax instalments particularly unsuitable.
“Such prepayment requirements effectively force taxpayers to pay tax before income is actually earned or can be reasonably assessed, undermining the principles of certainty, fairness, and administrative simplicity that underpin a progressive tax system. This burden is especially heavy for retirees who depend on fixed savings and unstable post-retirement income,” he said.
Against the backdrop of high living costs, elevated interest rates, and persistent inflationary pressures faced by households, Dr Chin warned that policies which further compressed the disposable income of salaried individuals and senior retirees could erode public confidence in tax administration and weaken voluntary compliance.
Based on these considerations, Dr Chin urged the government to adopt a more targeted and proportionate approach in tax policy formulation and implementation. This included refraining from extending CP500 instalment obligations to salaried individuals already subject to the PCB system, particularly where non-employment income was small, irregular, or non-recurring.
He also called for the explicit exemption of senior retirees who only engaged in non-continuous, ad hoc advisory or consultancy work, provided such income did not constitute a formal or ongoing business activity; maintaining CP500 as a mechanism targeted at taxpayers whose primary income was derived from non-employment sources, in line with its original intent and international practice; and conducting structured, substantive, and inclusive stakeholder consultations before introducing any policy changes that materially affected individual taxpayers’ cash flow, compliance burden, and financial planning.
Dr Chin stressed that Malaysia’s tax system should promote voluntary compliance through clarity, predictability, and proportionality, rather than creating perceptions of “excessive prepayment” through overlapping mechanisms. He added that the pursuit of administrative efficiency should not come at the expense of fairness, particularly for salaried taxpayers and senior retirees.
