Image credit: Astro Awani
KUALA LUMPUR: Small and medium enterprises (SMEs) have urged the Inland Revenue Board (LHDN) to provide greater transparency on payments for delayed tax refunds, citing concerns over cash flow visibility and accountability.
Business owners, particularly those owed substantial sums, say clearer timelines and tracking mechanisms are needed so both taxpayers and authorities can monitor repayments throughout the process.
SME Association of Malaysia president Dr Chin Chee Seong said LHDN already has the necessary repayment data and should be able to process refunds more efficiently with clearer disclosure.
"To keep it efficient, they should not only pay us immediately via bank transfers, they should also inform us once the refunds are done. At least SMEs know the money has been paid back.
"There also needs to be a full report on all of the refunds," he told Business Times.
Chin said the delayed refunds have caused "unnecessary cash flow issues" for SMEs in the last three years amid rising costs of doing business.
"This refund will significantly help businesses, especially as we're nearing the end of the year and many businesses are planning to reward their employers with bonuses or increments.
"The refund will help in terms of cash flow planning including expansion plans and digitalisation," he added.
Small and Medium Enterprises Association of Malaysia national president Datuk William Ng hopes for no further delay in the disbursement of the refunds and it should start with the oldest cases.
"It is now crucial that LHDN updates taxpayers as to how and when these refunds will be carried out. A clear timeline and transparent process will help LHDN, and by extension, the government, to narrow the trust deficit," he said.
Ng added that the marginal decline in SME growth to 39 per cent in 2024 from 37 per cent of the gross domestic product in 2015 is due to the "less than ideal confidence" in the policies and economy.
"With greater transparency and policy consistency, SMEs will be better able to plan our growth and investments.
"Overall, we welcome this extra funds provided for the refunds, and hope that a quick and simple refund timeline will be supportive of SME growth in 2026," he said.
INSUFFICIENT AMOUNT
However, Chin said the increased allocation of RM4 billion announced by the government for tax refunds may not be sufficient to cover the cases involved.
"They need to let us know if the allocated amount is enough to cover most of the cases or let us know how many were paid back and in which category. We do not have this information provided by LHDN," he added.
Additionally, Malaysian International Chamber of Commerce and Industry president Christina Tee said prolonged delays in refunds effectively lock up working capital, constraining businesses' ability to manage operating costs and respond to market pressures.
"The release of these long-outstanding funds would provide meaningful relief, particularly for smaller firms with tighter liquidity buffers," said Tee.
She added that the effectiveness of the initiative will depend on efficient execution, clear timelines, and transparent communication from LHDN.
"While a RM20 billion refund allocation has been proposed publicly, MICCI believes this would still be insufficient to fully address the backlog and ease cash flow pressures across the business ecosystem.
"A higher annual allocation of at least RM30 billion would be more commensurate with the scale of overpaid taxes and the working capital needs of both SMEs and mid-tier companies," added Tee.
DELAY = VULNERABLE
From an economist's perspective, Doris Liew said SMEs typically operate with limited liquidity buffers and uneven cash flows, making them especially vulnerable to delays in tax refunds.
She explained that prolonged refund cycles tie up working capital that would otherwise be used for essential day-to-day needs, such as purchasing raw materials and inventory, paying wages, or meeting short-term obligations.
"Over time, this limits firms' ability to invest in productivity-enhancing equipment, expand capacity, or diversify into new business lines.
"In many cases, businesses are forced to scale back operations or rely on short-term borrowing to manage cash flow gaps, increasing financing costs and balance sheet pressure.
"For micro SMEs, delayed refunds can significantly undermine financial stability and heighten the risk of business failure," she told Business Times.
The impact of refund delays varies across sectors.
She said businesses with high turnover, thin margins and rapid cash conversion cycles are disproportionately affected.
This is particularly in sectors such as logistics, food and beverage, retail, and personal and professional services, where firms depend on continuous cash inflows to sustain operations.
By contrast, she said capital-intensive firms or those with longer project cycles and more predictable revenue streams may be better able to absorb temporary delays.
However, she said even within these sectors, smaller firms face tighter constraints than larger players due to limited access to internal reserves or low-cost financing.
To address the issue, Liew said the LHDN should strengthen its audit and compliance functions to ensure refunds are processed accurately and without unnecessary delays.
"However, lasting improvements in efficiency and transparency will require deeper process reforms.
"Greater use of digitalisation and automation can significantly shorten processing times while maintaining oversight.
"A transparent, trackable refund system would also allow businesses to monitor the status of their claims and reduce uncertainty, while enabling LHDN to identify bottlenecks or compliance risks in real time," she added.
SIGNIFICANT IMPACT ON CASH FLOW
Echoing these concerns, Universiti Teknologi Mara Faculty of Business Management senior lecturer Dr Mohamad Idham Md Razak said clearing delayed tax refunds would have a highly significant impact on SMEs' cash flow and financial stability.
He noted that SMEs typically operate with tight cash positions and are highly sensitive to timing, with tax refunds often functioning as working capital rather than one-off windfalls.
Prolonged delays, he said, can force firms to rely on short-term borrowing, defer supplier payments, or postpone investment and hiring decisions, ultimately weakening financial stability and growth prospects.
Mohamad Idham added that the impact of refund delays is more pronounced in certain sectors.
"Export-oriented firms, manufacturers, construction-related businesses, and companies with high input costs are particularly affected, as they often generate sizeable refunds through input taxes, capital allowances, or advance tax payments," he noted.
He said SMEs operating on thin margins or project-based cash cycles are especially vulnerable, as delayed refunds can disrupt day-to-day operations and strain liquidity.
On policy measures, Mohamad Idham said LHDN should improve efficiency and transparency by setting clear timelines for refunds, strengthening digital tracking systems so taxpayers can monitor their claims in real time, and adopting targeted, risk-based audits to avoid broad delays.
He added that better communication, clearer documentation requirements, and faster escalation mechanisms for long-pending cases would help restore trust and reduce uncertainty among SMEs.
Source: SMEs flag cash flow risks from refund delays | New Straits Times