(TAX UPDATE) When LHDN Decides Your Tax Estimate With The CP205

(TAX UPDATE) When LHDN Decides Your Tax Estimate With The CP205

As an SME owner in Malaysia, you probably take pride in managing your business cash flow carefully. You plan your monthly tax instalments (CP204) and make sure your team submits the estimates to Lembaga Hasil Dalam Negeri Malaysia (HASiL) on time.

But what happens if one day, you receive an unexpected Form CP205 from HASiL, increasing your monthly instalment even though your company has already submitted an estimate?

This is the new reality some SMEs are facing.

1. What Is CP205 and Why SMEs Are Receiving It?

In Malaysia, we operate under the Self-Assessment System (SAS). This means:

  • Companies submit their Estimate of Tax Payable (CP204) for the current Year of Assessment.

  • You can revise your estimate in the 6th, 9th, and 11th month of your basis period via CP204A.

  • If you under-estimate your tax by more than 30%, you may face a 10% penalty.

Traditionally, LHDN only intervenes if you fail to submit or pay your instalments.

However, in 2024, many SMEs reported that HASiL issued CP205 (Notice of Instalment Increase) even when the company:

  1. Had submitted a reasonable estimate, or

  2. Reduced its estimate in the 6th month based on actual performance.

The logic from HASiL?

  • “We observe your industry is doing well.”

  • “Your company did well last year; we expect the same this year.”

  • “Your past pattern shows a drop at 6th month and an increase at 9th month, so we preemptively adjust it now.”

In short, CP205 is issued based on as per LHDN

  1. Industry performance & GDP reports

  2. Bursa Malaysia listed company trends

  3. Telephone surveys with companies

  4. Historical tax pattern analysis

This “CP205 surprise” forces companies to pay higher monthly instalments, sometimes without solid evidence of current profitability.

2. Why This Matters to SME Bosses

a) Cash Flow Shock
Your team budgets tax instalments based on projected revenue. When HASiL revises upwards:

  • Cash is locked into tax payments earlier than planned.

  • Funds for inventory, salaries, or expansion may be squeezed.

b) Extra Administrative Work
If you disagree with CP205:

  1. You must appeal, prepare explanations, and submit supporting documents.

  2. Even after appeal, you may still need to submit the 9th and 11th month revisions.

In short, more paperwork and less time to focus on growing your business.

c) Overpayment and Refund Delays
If your company ends up overpaying due to CP205:

  • Refunds may take 30 working days (e-filing) or 90 working days (manual), subject to the Tax Refund Fund (TBBC) allocation.

  • Delays are common, which means your cash is trapped with HASiL.

In other words, the system is legal under the Income Tax Act 1967, but places the burden of proof on you.

4. Practical Tips for SMEs

If your company receives a CP205, here’s what you should do:

1. Don’t Panic, Verify First

  • Check the CP205 instalment schedule against your latest cash flow and business performance.

  • If your revised tax estimate is genuinely lower, prepare evidence (management accounts, order books, or debtor aging).

2. Submit a Timely Appeal

  • File your appeal via MyTax / e-CP204A.

  • Keep your explanation factual and concise.

3. Use the 9th & 11th Month Revisions Wisely

  • Even after CP205, you can still reduce your estimate later if your profit drops.

  • Document your reasoning in case of future queries.

4. Plan Your Cash Flow with a Buffer

  • Consider keeping 1–2 months of tax instalment reserve to absorb sudden increases.

  • If your industry is volatile, expect HASiL to monitor and possibly intervene.

5. Monitor Refund Status

  • If overpayment occurs, submit a formal refund request and track via MyTax.

  • For large overpayments affecting operations, consider direct engagement with HASiL for priority processing.

5. Final Thoughts

The CP205 practice shows that Malaysia’s tax system is becoming more proactive and data-driven. While the intention is to secure government revenue, the impact on SMEs can be harsh if cash flow is tight.

As a responsible SME boss:

  • Monitor your tax estimates closely.

  • Appeal with evidence when necessary.

  • Stay prepared for early tax collection trends.

In tax, as in business, timely action beats costly reaction.

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