Raising their concerns: (From left) Syed Hussain, Ng and Koong.
Tax incentive might boost workers’ loyalty but burden SMEs, say experts
PETALING JAYA: A move has begun to provide a further 50% tax deduction to companies which provide paid leave of up to one year for workers taking care of their sick loved ones.
However the benefit, which applies from this month till Dec 31, 2027, has put employers in quite a dilemma.
“Some see it as a way to boost employees’ job satisfaction and loyalty, while others worry about the costs and potential disruptions it could cause,” said Malaysian Employers Federation president Datuk Dr Syed Hussain Syed Husman.
He explained that companies acknowledge the benefits of offering paid care giving leave, as it would lead to happier, more productive employees.
“This can help create a work culture that keeps staff engaged and loyal. Employers providing paid caregiving leave often see improved morale and productivity, contributing to a supportive corporate culture and fostering loyalty and engagement among employees.”
Syed Hussain, however, said that Micro, Small and Medium Enterprises (MSMEs) have voiced concerns about potential operational disruptions and financial implications due to such prolonged leave.
“They worry about increased labour costs affecting profitability and competitiveness. Managing prolonged caregiving paid leave programmes will be administratively challenging, especially for MSMEs,” he said.
The move to provide employees this benefit was outlined in Budget 2025.
Employers can offer up to 12 months of extra paid leave for caregiving of ill children or disabled family members, with a 50% additional tax deduction on related costs, on top of the standard deductions under Section 33 of the Income Tax Act.
For example, if a company spends RM100,000 a year on paid caregiving leave, the new tax incentive would allow them to deduct an additional 50%, making the total deductible RM150,000. With a corporate tax rate of 25%, this results in tax savings of RM37,500.
The plan will be implemented through Talent Corporation Bhd (TalentCorp), with applications open from Jan 1, 2025, to Dec 31, 2027.
While the Budget 2025 move may help larger businesses, Syed Hussain said smaller ones might struggle with the challenges of the employee’s long absence, especially for roles needing specialised skills.
He added that employers may face increased administrative tasks, the need to hire temporary staff or the burden of redistributing workload, which could lead to extra training costs and employee fatigue.
Datuk William Ng, president of the Small and Medium Enterprises Association of Malaysia (Samenta), highlighted the challenges which SMEs face compared to larger firms regarding paid leave.
“Larger companies, especially multinationals, can easily implement paid leave due to their strong branding and access to top talent. SMEs, on the other hand, invest heavily in paid leave without any guarantee that employees will stay or remain updated with market trends. This can disrupt operations and strain limited resources for SMEs.”
Ng pointed out that the tax savings might initially seem to cover 12% of salaries during caregiving leave, but the real savings are closer to 10% after statutory contributions.
“This means the government covers only about 10% of leave costs, leaving SMEs to manage the rest, including risks like employees leaving, temporary staffing costs, and business disruptions.”
Some SMEs might use the scheme for loyal and capable employees “but don’t expect it to be widely adopted across the sector”, Ng added.
“A few SMEs might apply this incentive for key employees, but broad adoption isn’t likely.”
Ng suggested that a Flexible Work Arrangement could be a more attractive option for SMEs.
He also called for clearer guidance from authorities as they work out the details.
“We’re waiting for further clarification from the authorities.”
Associated Chinese Chamber of Commerce and Industry of Malaysia treasurer Koong Lin Loong suggested that the government avoid using TalentCorp for the implementation process, as it could create unnecessary red tape.
He suggested that the tax deductions be handled directly through the Inland Revenue Board.
“Furthermore, some businesses think the tax deduction system could be more troublesome than what it’s worth. We hope the authorities will quickly provide clear guidelines.”
However, Koong said the association was generally supportive of the idea to provide such a benefit as it could help build a caring society and assist employers in keeping their staff.
