(Tax Update) CP500 Penalty Waived for 2026 … What This Means for Taxpayers

(Tax Update) CP500 Penalty Waived for 2026 … What This Means for Taxpayers

Introduction

On 5 January 2026, Lembaga Hasil Dalam Negeri Malaysia (HASiL) made an important public announcement following the New Year Address 2026 announced by the Honourable Prime Minister Anwar Ibrahim.

Many individual taxpayers who received CP500 instalment notices especially salaried employees with some side income were worried about penalties.

The Government has now stepped in.

HASiL confirmed that no penalty will be imposed in 2026 for CP500 instalment non-payment for certain individuals. This is meant to be a transition period, not a permanent change.

This article explains what was announced, who it affects, and what SME owners and directors should do next and grey areas for further clarification…

Key Summary

Based on HASiL’s media release :

No CP500 penalty for 2026

Individuals who receive CP500 notices will not be penalised in 2026 if they do not pay the instalments during this transition year.

Target group: salaried individuals with other income

The concession mainly applies to individuals who have:

  • Employment income, and

  • Additional non-employment income such as rental, interest, royalties, or freelance income.

  • Pure salary earners do not need to comply with CP500
    Taxpayers who only have employment income do not need to follow CP500 instructions. But they must update their income correctly in their tax return.

Voluntary payment is encouraged

Even though there is no penalty, taxpayers are encouraged to pay CP500 voluntarily to reduce future lump-sum tax payments.

Update your BNCP carefully

Taxpayers are advised to update their 2025 tax return properly to avoid unnecessary CP500 notices in future.

Amendments via CP502 are allowed

If CP500 is not accurate, amendments can be made:

  • First amendment deadline: 30 June 2026

  • Second amendment deadline: 31 October 2026

As a guide and reference, information on CP502 and the Explanatory Notes for CP502 can be accessed and downloaded by following these simple steps:

i. Visit the official IRBM portal at www.hasil.gov.my;
ii. Click Menu Forms > Download Forms > Other Forms > Application for Amendment of Instalment Payments Form (CP502) / Explanatory Notes CP502; or
iii. Quick access links:
• Application for Amendment of Instalment Payments Form (CP502)
• Explanatory Notes CP502

Taxpayers Implications

For SME owners, directors, and finance teams, this change matters in three practical ways.

Directors with side income

Many directors receive:

  • Director’s fees and sa lary

  • Rental income

  • Interest or investment income

These profiles often trigger CP500 automatically. The penalty waiver gives breathing room, but the obligation still exists.

Cash flow planning

Not paying CP500 in 2026 may feel comfortable now, but it could result in a large tax payment later when the tax return is filed. This can hurt personal and family cash flow.

Compliance discipline still matters

The waiver does not mean CP500 is cancelled. It only removes penalties temporarily. Poor reporting or ignoring notices can still create future audit or compliance issues.

Grey Areas

Here are the key clarifications we still need, and why they matter:

1) Exactly who qualifies for “no penalty in 2026”?

HASiL says “individuals who receive CP500” and mentions those with employment + non-employment income. But it is not fully clear:

  • Does it cover all individuals who receive CP500 in 2026, or only those in this specific profile?

  • What about pure business owners (no salary) who receive CP500 … included or excluded?

2) What type of penalty is waived?

CP500 normally has penalty for instalment not paid / underpaid. We need HASiL to confirm:

  • Is it waiving the CP500 instalment penalty only?

  • Or does it also affect other penalties (late payment of final tax, late filing, etc.)?
    Likely it is only CP500, but they should state it clearly.

3) What if the taxpayer pays “zero” instalments in 2026?

HASiL says “no penalty if not paying instalments”, but taxpayers still need to know:

  • Will HASiL still issue reminders, calls, or compliance follow-up letters?

  • Will there be any negative compliance tagging (risk profiling) for those who do not pay at all?

4) If you “don’t need CP500 because only salary”, how will HASiL stop it?

HASiL says salary-only taxpayers do not need to comply. Practical problem:

  • Many people already received CP500 even though they believe they are salary-only.
    We need clarity on :

  • Will HASiL automatically cancel CP500 for salary-only taxpayers?

  • Or must taxpayers take action (update BNCP / submit explanation / submit CP502 / contact HASiL)?

5) What does “HASiL will contact taxpayers for reporting errors” actually mean?

This line is important, but unclear:

  • Will they contact via MyTax message, email, phone call, letter?

  • Is it an “advisory” contact or the start of an audit / investigation?

  • What documents will they ask for (rental schedule, EA form, bank interest, etc.)?

6) CP502 amendment … is it needed if you want to reduce CP500 to RM0?

They gave CP502 deadlines (30 Jun and 31 Oct 2026). But for affected taxpayers:

  • If you plan not to pay instalments in 2026 (since no penalty), do you still need to submit CP502?

  • Or is CP502 only for people who want to make CP500 match actual estimate and avoid a big final payment?

7) How does this interact with BNCP for YA 2025?

HASiL advises updating BNCP YA 2025 to avoid CP500 in future. We need HASiL to clarify:

  • Which part of BNCP reporting usually triggers CP500 wrongly?

    • “Other income” field?

    • Wrong category selection?

    • Mistaken entry of interest/bonus/commission as business income?

  • If a taxpayer made a mistake in YA 2024/YA 2025 filing, should they amend now?

KTP’s View

Our advice:

  • Do not panic.

  • Do not ignore CP500 blindly.

  • Use 2026 to clean up reporting, align estimates, and plan properly.

The real risk is not penalty in 2026. The real risk is a big tax bill later with no preparation.

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