CP38: Salary Deduction for Tax Arrears — What You Need to Know

Introduction

Every month, your employer makes a Monthly Tax Deduction (MTD), also known as PCB, from your salary. But what if you still have outstanding tax — for example, a tax balance from previous years?

In that situation, HASiL may issue a CP38, which is an instruction to your employer to make an additional salary deduction. This article explains what CP38 is, how it affects you, and what options are available.

What is CP38?

CP38 is a HASiL instruction to an employer to make an additional monthly deduction from an employee's salary — that is, a deduction other than the regular PCB/MTD — for the settlement of the employee's income tax arrears.

A few important things to understand:

• CP38 is not regular PCB/MTD. PCB/MTD is the monthly deduction for current tax; CP38 is specifically for settling a tax balance (arrears).
• CP38 is also not CP39. CP39 is the Employer's Monthly Tax Deduction Statement — the statement that records the deductions made by the employer.

How does CP38 work?

When HASiL issues a CP38 instruction to your employer, the employer must make an additional monthly deduction from your salary, besides the existing MTD. This means you will experience two simultaneous salary deductions during the period stated in the instruction:

1. the regular MTD/PCB deduction; and
2. the additional CP38 deduction for tax arrears.

Also important: do not assume the CP38 deduction amount follows a particular rate. The CP38 deduction amount is set in the individual instruction issued by HASiL to the employer — it is not the same for everyone.

Payment deadline for employers

Employers who receive a CP38 instruction must pay the CP38 deduction and MTD to HASiL on or before the 15th day of the following month. This is the payment deadline confirmed from official HASiL sources.

Recording in CP39

CP38 deduction payments are recorded in a separate column of the Employer's Monthly Tax Deduction Statement (CP39). This makes it easier for HASiL and employers to track the total CP38 deductions made.

Alternative: applying to pay the tax balance by installments

If you do not want to or cannot face the full deduction via CP38, there is an alternative route: applying to pay the tax balance by installments.

This application is made by letter of appeal to the HASiL collection unit before 30 April or 30 June of the relevant year. Important note: even if the installments are approved, late payment penalties still apply.

In other words, we know the application is made by letter of appeal to the HASiL collection unit before the dates above, but full procedural details such as the form, supporting documents and processing period have not been confirmed at this review.

If an employer fails to make the CP38 deduction, there may be specific penalty consequences — but the relevant penalty provisions have not been confirmed at this review, so they are not stated here.

What should you do?

• If you are an employee: check your payslip. If there is an additional deduction outside MTD, it may be CP38. Contact HASiL to understand your tax balance and installment options.
• If you are an employer: if you receive a CP38 instruction, make the additional monthly deduction, record it in the separate CP39 column, and pay before the 15th day of the following month.

The content of this article was verified via HASiL's official English-language page. The equivalent Malay-language page has not been probed at this review, so Malay parity needs to be verified before publication.

Frequently Asked Questions (FAQ)

Q. What is the difference between CP38 and PCB/MTD? A. PCB/MTD is the monthly deduction for current income tax. CP38 is a HASiL instruction to your employer to make an additional monthly deduction (besides MTD) to settle your income tax arrears.

Q. Will my salary be deducted twice? A. Yes — while the CP38 instruction is in force, you remain subject to MTD and also the additional CP38 deduction. This means two simultaneous salary deductions during the period stated in the instruction.

Q. When must the employer pay the CP38 deduction? A. On or before the 15th day of the following month, together with the MTD payment.

Q. Can I apply for installments for my tax balance? A. Yes — by letter of appeal to the HASiL collection unit before 30 April or 30 June of the relevant year. However, late payment penalties still apply even if the installments are approved.

Glossary

• CP38 — HASiL instruction to an employer to make an additional monthly salary deduction (besides MTD) to settle tax arrears.
• MTD/PCB — Monthly Tax Deduction (Potongan Cukai Bulanan), the monthly deduction for current income tax.
• CP39 — Employer's Monthly Tax Deduction Statement; CP38 payments are recorded in a separate column of this statement.
• Tax arrears — outstanding income tax balance that has not been settled.
• HASiL — Lembaga Hasil Dalam Negeri Malaysia (Inland Revenue Board of Malaysia).