On 23 June 2025, the Government gazetted the Income Tax (Deduction for Expenditure in relation to Environmental Preservation, Social and Governance) Rules 2025 [P.U.(A) 193/2025] (“the Rules”). The Rules are effective from the Year of Assessment (YA) 2024 to YA 2027.
This initiative, first announced in Budget 2024, allows a tax deduction of up to RM50,000 per YA for qualifying ESG-related expenses.
Who Can Benefit?
The Rules apply to the following taxpayers resident in Malaysia:
- Financial institutions supervised by Bank Negara Malaysia
- Companies (including those listed on Bursa Malaysia)
- Labuan companies
- Micro, small and medium enterprises (MSMEs)
Qualifying ESG Expenditure
(a) For Financial Institutions / Listed Companies
- ESG validation, verification & certification (including greenhouse gas tracking)
- Subscriptions to ESG software or technology systems
- Staff capacity building (training, education, skills development)
- Consultancy fees for ESG compliance
(b) For Companies / Labuan Companies
- Preparation of reports under the Tax Corporate Governance Framework (TCGF), including review by an independent reviewer (subject to obtaining Certificate of Compliance)
- Preparation of contemporaneous Transfer Pricing documentation
(c) For MSMEs
Consultation fees incurred by a micro enterprise or a small and medium enterprise for the development of customised software to implement electronic invoicing in its business operations, and for engaging the services of external service providers for such implementation, shall qualify for deduction.
However, this does not include —
-
- any expenditure incurred during the planning stage or preliminary procedures relating to the provision of the customised software; and
- any consultation fee relating to the issuance of an electronic invoice through the MyInvois Portal.
Non-Application of the Rules
The ESG deduction cannot be claimed if, in the same YA, the expenditure has already been:
- Deducted under Section 33 ITA 1967;
- Exempted under Section 127(3)(b) / 127(3A) ITA 1967; or
- Claimed under other rules made pursuant to Section 154 ITA 1967.
Key Takeaways for Businesses
- Eligible taxpayers may claim up to RM50,000 per YA from YA 2024 to 2027.
- As the Rules were only gazetted on 23 June 2025, businesses that have already filed YA 2024 returns may revise their filings under Section 131A ITA 1967.
- Proper documentation (contracts, invoices, ESG certificates, training records, software purchase details) must be maintained to support claims.
Reference
Official Source: Income Tax (Deduction for Expenditure in relation to Environmental Preservation, Social and Governance) Rules 2025 [P.U.(A) 193/2025] – Published in the Federal Government Gazette on 23 June 2025.
https://lom.agc.gov.my/ilims/upload/portal/akta/outputp/2928613/PUA%20193%20%282025%29.pdf
