PETALING JAYA: Delayed tax refunds are forcing some businesses to dip into personal savings, postpone bonuses and even take on bank loans just to stay afloat, says an SME-focused tax practitioner.
ANC Group founder and executive director Song Liew said the most immediate impact of delayed refunds is on cash flow rather than profitability, as many businesses may be technically profitable on paper but lack the liquidity needed to meet daily obligations.
“For SMEs, cash flow is critical to survival, particularly as year-end expenses mount.
“SMEs rely on refunds as part of their working capital. When that money is held back, it creates pressure across the board, from paying suppliers and staff salaries to meeting loan repayments,” he said.
Liew said the strain is closely linked to how Malaysia’s tax estimation system works.
Under existing rules, companies are required to estimate and pay at least 85% of their expected tax liability in advance, based mainly on previous years’ estimates.
“For example, if the estimate for 2025 is RM100,000, then the initial estimate for 2026 has to be RM85,000, even though the business expects to slow down in 2026 significantly.
“This means that even if a company is making less money, it still has to pay upfront based on past estimates. If the estimate falls below the required threshold, the tax system does not allow submission, and penalties apply,” he said.
To avoid underestimation penalties, many SMEs intentionally estimate higher tax and pay more than necessary.
In the past, this was manageable because excess tax payments could be offset against future tax instalments.
However, Liew said this mechanism has since been removed.
“Previously, if you overpaid, you could set off the credit against future tax instalments. That softened the impact.
“Now, businesses must continue paying instalments while their refunds are stuck,” he said.
As a result, SMEs face a double whammy – funds tied up in delayed refunds on one hand and ongoing instalment obligations on the other.
Failure to pay instalments can trigger penalties, even though the money owed to the business remains unpaid.
Liew said the cash flow crunch has real consequences on the ground.
Some SMEs have been forced to delay bonus payments, while others turn to bank financing to bridge the gap, incurring additional interest costs.
“I’ve seen cases where businesses are profitable but have no cash to pay bonuses or plan for the following year.
“They are forced to borrow, not because the business is failing, but because their money is tied up elsewhere,” he said.
Liew added that the impact is particularly severe for SMEs operating on thin margins and limited reserves, where even relatively small refund delays can disrupt operations.
While some businesses have begun receiving refunds following recent announcements, he said confidence would only be restored if refunds were allowed to set off against future tax estimates, processed faster and more predictably.
“For small businesses, tax refunds are not a windfall but funds already paid in advance under the tax estimation system. Many SMEs are profitable on paper, but they struggle because the cash is not there,” he added.
