IT WAS a bumper year for tax refunds in 2025, with the Inland Revenue Board (IRB) refunding RM22.45 billion in direct taxes. This will be a welcome boost for taxpayers who, until recently, had to wait patiently for overpaid taxes to be refunded in instalments over a period of up to four years, particularly corporate taxpayers.

This reflects the improved economic condition of the country where growth in the fourth quarter of 2025 reached a record high of 6.3%, resulting in an annual gross domestic product growth of 5.2%. The improved economic situation has allowed the government to refund larger sums to taxpayers.

In Parliament, it was explained that RM56 billion was refunded between 2023 and 2025, an amount 50% higher than the RM37 billion refunded during the period from 2020 to 2022. Meanwhile, the government has committed to settling all refunds up to the year 2024 by the end of 2026,

To ensure refunds are made within the prescribed time frame, several administrative measures have been introduced. These include prioritising refunds based on the age of outstanding cases using the First-In, First-Out principle. Full settlement is generally accorded for excess tax payments relating to individual taxpayers. Priority is also given to MSMEs and companies facing cash flow constraints.

How can taxpayers help themselves?
It is learnt that IRB is unable to refund taxes to thousands of taxpayers mainly because their personal details have not been updated. Common errors include missing or incorrect bank account details, or inaccurate particulars such as names, email and correspondence addresses and contact numbers. Taxpayers should promptly update these details so refunds can be processed quickly and, if issues arise, IRB can contact them to resolve the problems. The board has allocated resources to locate such taxpayers and rectify the issues.

When will refunds be held back?
In addition to the above discrepancies, refunds may also be withheld in situations such as ongoing court disputes, taxpayers having outstanding liabilities for other years, cases under audit or investigation, or where companies are being wound up or liquidated.

The way forward
The authorities should be commended for their commitment to ensuring that tax overpayment refunds are processed fairly, transparently and equitably while taking into account the interests of taxpayers.

Several policy improvements have also been introduced to reduce excess tax payments. Legislative amendments now allow taxpayers to revise their tax estimates in the eleventh month, instead of being limited to revisions in the sixth month, ninth month or both. This enables taxpayers to align estimated tax payments more closely with their actual liability, thereby minimising excess payments.

For individual taxpayers, adjustments to monthly tax deduction (MTD) may help ensure the correct amount of tax is deducted during the year. Applications to amend MTD must be submitted using Form PCB/TP1 to claim additional deductions or rebates.

As a further step in the right direction, taxpayers could be allowed to set off excess tax paid against future tax instalment or CP500 payments. At present, however, IRB does not permit such set-offs, although this position may evolve. In the meantime, taxpayers may approach IRB to seek special dispensation to allow set-offs, supported by valid reasons such as cash flow constraints, temporary downturns in business cycles, or internal disputes affecting the company’s ability to settle taxes. In exceptional circumstances, IRB may consider allowing the set-off.

Ideally, taxpayers should aim to pay the correct amount of tax. Where the final liability cannot be estimated accurately, it may be advisable to slightly underpay and settle the balance upon filing the tax return. Taxpayers are generally allowed to underestimate their tax by up to 30% of the final tax payable without incurring an underestimation penalty.

This approach may be more efficient than overpaying taxes and losing out on the time value of money. While IRB does pay a tax-free interest of 2% on refunds, such interest is calculated from 90 days after the date of e-filing until the refund is paid.

This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).

 The Sun Malaysia