Following the Budget 2024 announcement, the Income Tax (Deduction for Expenditure in relation to Environmental Preservation, Social and Governance) Rules 2025 have now been gazetted.
This regulatory development provides targeted tax deductions of up to RM50,000 per Year of Assessment (“YA”) to incentivise Environmental, Social and Governance (“ESG”) initiatives undertaken by businesses.
The deduction is available for YA 2024 to YA 2027.
Scope of qualifying ESG expenditure:
| Category | Qualifying expenditure |
| • Financial institution • Company listed on Bursa Malaysia | Expenditure incurred on ESG reporting in relation to: • Validation, verification and certification of ESG practices and calculation and tracking of greenhouse gas emissions and ESG exposure; • Subscription of technology or software used in ESG data collection, metric tracking, risk management, scenario analysis, and greenhouse gas emissions calculations; • Capacity building including training, education and skills development for employees; and • Engagement of ESG consultants or technical experts to perform the above activities. |
| • Company • Labuan Company | Qualifying ESG related expenditure in relation to: • Preparation of reports under the Tax Corporate Governance Framework (“TCGF”) issued by the Director General of Inland Revenue; • Appointment of independent reviewers to assess compliance with TCGF; and • Preparation of contemporaneous transfer pricing documentation. |
| • Micro, Small and Medium Sized Enterprise (“MSME”) (Note) | Consultation fees for the development of customised software for the implementation of e-Invoice and obtaining services of external service providers but excludes: • Expenses incurred at the planning stage or preliminary procedures for the provision of the customised software; and • Consultation fee relating to the issuance of e-Invoice through MyInvois Portal. |
Note: Definition of MSME
| Category | Manufacturing | Services and other sectors | ||||
| Sales turnover | Number of full time employees | Sales turnover | Number of full time employees | |||
| Micro | < RM300,000 | OR | < 5 | < RM300,000 | OR | < 5 |
| Small | RM300,000 to RM15 million | 5 to 74 | RM300,000 to RM3 million | 5 to 29 | ||
| Medium | RM15 million to RM50 million | 75 to 200 | RM3 million to RM20 million | 30 to 75 | ||
