Short answer: for companies that are not MSMEs, yes. From year of assessment 2028, the tax deduction for salaries is allowed only if those wages are paid through financial institutions or prescribed cashless payment instruments.
If you still pay wages in cash, you do not lose your staff. You lose the tax deduction.
What actually changes
Until now, wages paid in cash were still claimable as a deduction. From year of assessment 2028, for companies that are not MSMEs, a new condition applies: if payment is not made through a prescribed financial channel, the deduction is not allowed.
Other expenses remain deductible regardless of the payment method. The rule concerns salaries.
It is tied to the government’s effort to curb the employment of undocumented foreign workers — because cash payment is the easiest way to avoid detection.
Work out the real cost before it happens
This is not a small administrative matter. Take an illustration:
- 30 staff, average wage RM2,000 a month
- Total wage cost per year: RM720,000
- If the deduction is disallowed, the company’s chargeable income rises by RM720,000
- At a 16% tax rate, that is roughly RM115,000 in additional tax
That number is not because the government raised taxes. It is because you are paying wages in a way that no longer allows the deduction.
(This is an illustration to show the scale, not a tax computation for your company. Confirm with your tax officer.)
Why to start now, not in 2028
2028 sounds distant. It is not.
If you have 30 staff being paid in cash, moving all of them to bank payment is not a one-day job. It involves opening accounts for staff, verifying identity, aligning records, and changing how managers work. That is months of work, not weeks.
And there are two further reasons to do it earlier:
- It makes e-invoicing easier. A system that cannot accurately verify wage payments will struggle to verify other costs too.
- It makes financing easier. Banks read consistent payroll records as a sign of a well-run business. Cash payroll is a red flag.
What I would do
List every employee still paid in cash. Start with the longest-serving — they are usually the easiest to persuade, because they already have a bank account.
Set an internal date, rather than waiting for the tax date. Aim for mid-2027, so that when 2028 arrives it is already routine.
Measure the cost of the switch before assuming it is expensive. Most owners assume moving to bank payment means a pay rise. Usually it does not — usually it needs an explanation and a little patience.
Pay attention to your foreign workers. This is the most complicated part — documents, accounts, verification. If this is what blocks you, deal with it early, not in the final week.
FAQ
Does this rule apply to every company? It is stated for companies that are not MSMEs. But check your position — especially if you are close to the MSME qualifying line, or part of a group structure.
What counts as a “prescribed cashless payment instrument”? Bank transfer is the simplest and safest. Other methods depend on what the authority prescribes — confirm the current list with your tax officer.
Are other expenses affected? No. This rule is specific to salaries. Other expenses remain deductible regardless of payment method.
What if part of the wage is paid by bank and part in cash? This is the riskiest situation to get wrong. If you are in it, take advice before that year of assessment begins.
When does it take effect? Year of assessment 2028.
Is this actually good news? Yes, if you look at it honestly. It forces a discipline you should already have — and that discipline will help you in tax, financing and operations. The only thing that loses out is an old way of working that was hiding problems.
If you want to know where your business is actually stuck, message me for a business assessment I do myself.
— Datuk Wira Dr Azizan Osman
Sources: Budget 2027 tax summary by Grant Thornton Malaysia; Budget 2027 documents (Ministry of Finance). This article is not tax advice — confirm your company’s position with your tax officer.