Malaysia to limit wage tax deductions to documented salary payments

As part of Budget 2027, the Malaysian government is tightening regulations around wage tax deductions to curb the hiring of foreign workers without proper documentation. Under the new framework, businesses seeking to claim salary expenses as tax deductions must demonstrate that payments were made through traceable methods, such as bank transfers or formal payroll systems.

Prime Minister Anwar Ibrahim outlined the policy change, emphasizing that the move targets companies that may be employing undocumented migrants while claiming tax benefits. The requirement for traceable payments is intended to create greater accountability in Malaysia's labour market and discourage informal employment arrangements.

The measure aligns with the government's broader efforts to regulate the employment of foreign workers and ensure compliance with immigration laws. By linking tax benefits to documented payment records, authorities aim to make it less economically attractive for employers to hire workers outside formal employment frameworks.

Companies will need to adjust their payroll practices to ensure all wage payments are conducted through verifiable channels if they wish to claim corresponding tax deductions. The policy is expected to take effect as part of the 2027 budget implementation.