Anwar: Firms can claim salary tax deductions only for traceable wage payments

 

BUDGET 2027 | Companies other than micro, small, and medium enterprises (MSMEs) will be able to claim tax deductions on salary expenses only if wages are paid through bank accounts or other approved channels, Prime Minister Anwar Ibrahim announced today.

Tabling Budget 2027 in the Dewan Rakyat, Anwar said the measure was intended to make it harder for employers to hire migrant workers without permits.

“On the issue of wages, to close the space for employers to hire migrant workers without permits, companies other than MSMEs can only claim tax deductions on salary expenses if these are paid through bank accounts, in line with the permitted channels,” he said.

The measure adds a tax consequence to existing labour rules on wage payments and creates a traceable payroll record for larger companies.

Under the Employment Act 1955, wages are generally paid through financial institutions. Employers must also obtain prior approval from the Labour Department before hiring migrant workers.

Anwar’s announcement comes amid stepped-up enforcement against employers accused of hiring or harbouring undocumented migrants.

Last week, Home Minister Saifuddin Nasution Ismail said 1,809 employers had been arrested for such offences between Jan 1 and Sept 29 this year. Of those arrested, 1,692 were Malaysians.

The number reflects a broader increase in action against employers, with arrests rising from 346 in 2023 to 1,859 in 2024 and 2,202 last year.

Saifuddin (below) said enforcement should target not only undocumented migrants but also those who employ, harbour, or exploit them. He warned that hiring such workers for profit could pose national security threats.

During the same period this year, the Immigration Department conducted 10,374 operations nationwide, checking 137,603 people and arresting 37,313 undocumented migrants.

Malaysiakini previously reported that Immigration had increasingly focused on employers as part of efforts to reduce the “pull factor” drawing undocumented workers into the country.

Past regularisation exercises

Enforcement has also been complicated by previous regularisation exercises. Under the Labour Recalibration Programme (RTK), employers were allowed to legalise undocumented migrant workers who had overstayed or lacked valid work permits.

RTK 1.0 was introduced in December 2020, while RTK 2.0 ran from January to December 2023. In the first seven months of RTK 2.0 alone, more than 720,000 undocumented migrants were registered by 51,753 employers.

The programme also drew allegations of abuse, including claims that syndicates involving immigration insiders and agents manipulated applications and charged extra fees for approvals.

Recruitment oversight

The Budget measure was announced on the same day the US Trafficking in Persons (TIP) 2026 report retained Malaysia’s Tier 2 ranking, while highlighting persistent weaknesses in the country’s migrant-worker recruitment system.

The report said no employment agency had been prosecuted under Malaysia's Private Employment Agencies Act during the latest assessment period, despite findings that many migrant workers continued to pay recruitment fees above permitted levels.

Such fees can expose workers to debt-based coercion and forced labour.

By linking salary tax deductions to approved payment channels, the measure aims to make off-the-books employment harder for larger firms. The TIP report, however, points to broader enforcement gaps involving recruiters and intermediaries before workers enter formal employment. - Mkini