KUALA LUMPUR (Jan 13): The SME Association of Malaysia has urged the government and the Inland Revenue Board (IRB) to reconsider the CP500 requirement for salaried individuals and retirees, saying it creates an unfair prepayment burden and adds to cash-flow pressure and administrative complexity. CP500 applies to individuals with non-employment income such as rental or freelance earnings.
SME Association of Malaysia national president Dr Chin Chee Seong urged the government to take a more targeted approach to tax policy, including not extending CP500 to salaried individuals already covered by the PCB system, especially where the side income is small or irregular. He also called for exemptions for retirees who only undertake occasional advisory or consultancy work that does not constitute a formal business.
Chin added that CP500 should remain focused on taxpayers whose main income comes from non-employment sources, in line with its original purpose, and stressed the need for proper stakeholder consultation before any policy changes.
He said Malaysia’s tax system should prioritise clarity, fairness and proportionality, rather than imposing excessive prepayment burdens on salaried individuals and retirees.
“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 in a statement.
Chin added that extending CP500 to individuals with small or irregular side incomes, including retirees who occasionally do advisory or consultancy work, often results in inaccurate income estimates, higher compliance burdens and unnecessary financial strain. Many retirees no longer have stable monthly income and rely on sporadic, unpredictable engagements, making advance tax instalments unsuitable.
He said the extension of the mechanism to individuals with unstable side incomes, including senior retirees who provide advisory or consultancy services, often leads to unnecessary financial burden and difficulties.
Chin said advance tax payments under CP500 force taxpayers to pay tax before income is earned or can be properly assessed, undermining fairness and certainty in the tax system. He noted that the burden is especially heavy on retirees who rely on fixed savings and irregular post-retirement incomes.
Against the backdrop of high living costs, higher interest rates and persistent inflation, he warned that such policies could reduce disposable income, weaken public trust in tax administration and discourage voluntary tax compliance.
Chin added that the IRB’s announcement of a one-year penalty waiver for non-payment of CP500 this year does 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.