Call on Finance Ministry to review CP500 tax scheme for salary earners

KUCHING (Jan 22): The Ministry of Finance has been urged to urgently review the application of the CP500 tax instalment scheme amid concerns that its current implementation unfairly penalises salary earners who invest or run small side businesses.

Sarawak Housing and Real Estate Developers’ Association (Sheda) advisor Dato Sim Kiang Cheok said the CP500 scheme should be confined strictly to full-time businesses and not be extended to salaried individuals who are already subject to Monthly Tax Deductions (PCB) under the Pay-As-You-Earn system.

He pointed out that salary earners already contribute income tax every month through PCB, well ahead of their annual tax filing.

“Imposing CP500 on the same individuals merely because they receive rental income or operate small business activities effectively results in double pre-collection of tax within the same year.

“This is neither equitable nor reflective of the actual cash flow realities faced by working Malaysians,” he said in a statement yesterday.

CP500 is the Inland Revenue Board’s (LHDN) Notis Bayaran Ansuran, or instalment payment notice. It applies to individuals who have non-employment income, such as rental income as well as business income or profits.

Sim noted that CP500 requires advance tax payments even when business or rental income is irregular, seasonal or in some months, non-existent.

He added that instalments are still payable even when businesses incur losses or when rental properties remain vacant, creating unnecessary cash flow strain.

“This creates unnecessary cash flow strain, especially for middle-income salary earners who invest or operate small side businesses to supplement their income,” said Sim, who is also SUPP Stakan chairman.

He further cautioned that such a system discourages entrepreneurship and investment by sending the wrong signal that Malaysians should avoid investing in rental properties or starting small businesses because they will be taxed in advance regardless of actual performance.

“Over time, this undermines the national agenda of promoting private investment, entrepreneurship, and wealth creation,” he added.

Sim proposed that for salary earners, tax on non-employment income should be assessed and paid at the end of the financial year based on actual profits rather than projected figures.

“CP500 should be limited to full-time businesses with continuous and predictable income, and where PCB does not apply. A fair, practical, and pro-growth tax system must recognise cash flow realities.

“Penalising salary earners who invest or do business will only make Malaysia a less attractive place for investment and enterprise,” he said.