Understanding Estimate of Tax Payable

The Estimate of Tax Payable (ETP) is a system under Malaysia’s Income Tax Act 1967 that requires companies to declare their expected tax liabilities for a financial year. This mechanism, managed by the Inland Revenue Board of Malaysia (LHDN), helps ensure timely and consistent tax payments throughout the year.

Companies must submit their ETP via Form CP204 at least 30 days before the start of their financial year. The estimate is based on the previous year’s taxable income, with a minimum requirement that it should not be less than 85% of the prior year’s tax liability unless the company qualifies for an exemption. Start-ups and dormant companies are often excluded from this requirement.

Payments under ETP are made in monthly instalments, allowing businesses to spread their tax obligations over the year. Any underpayment or overpayment will be reconciled when the company files its annual tax return using Form C.

Failure to submit an ETP on time may result in penalties. Additionally, underestimating taxes by more than 30% of actual liability can attract fines. This system ensures efficient tax collection and helps businesses manage their cash flow effectively while meeting their obligations.