CP38 Malaysia: Employer Guide to Additional Tax Deductions

When an employee has unpaid taxes, LHDN issues a CP38 notice to the employer, requiring additional salary deductions.

But how does this work? And what happens if the deductions are not made? Here’s everything employers need to know.

What is CP38?

CP38 is an additional tax deduction order issued by LHDN to employers, requiring them to deduct extra tax from an employee’s salary.

This deduction is made on top of the usual Monthly Tax Deduction (MTD/PCB) and is used to settle any outstanding tax owed by the employee.

Not like PCB which is a regular tax deduction based on an employee's salary, CP38 only applies when LHDN issues a special directive.

This usually happens when an employee has unpaid or underpaid taxes from previous years.

CP38 Payment Deadline

Employers must remit CP38 deductions by the 15th of the following month after salary payment. For example:

If salary is paid in July 2025, the CP38 deduction must be submitted by 15th August 2025.

The Differences of CP39 and CP38

Aspect	CP39 (PCB/MTD Submission)	CP38 (Additional Tax Deduction)
Definition	A form used by employers to report and submit Monthly Tax Deductions (MTD/PCB) to LHDN.	A special tax deduction order issued by LHDN for employees with outstanding tax arrears.
Purpose	Employers use CP39 to submit the mandatory monthly tax deduction for employees.	CP38 is an additional deduction made on top of PCB to settle unpaid taxes from previous years.
Issued By	Employers	LHDN issues CP38 to employers when an employee has tax arrears.
Who Pays?	Employees (through their salaries)	Employees (via salary deductions ordered by LHDN)
Employer’s Role	Deduct PCB from employee salaries and submit it to LHDN by the 15th of the following month.	Deduct the CP38 amount as per LHDN’s official instruction letter and submit it separately from PCB.
How It’s Processed?	Employers deduct PCB monthly and submit it via CP39 (manual) or e-CP39 (online).	Employers must deduct and remit CP38 separately based on LHDN's schedule.
Due Date	15th of the following month	Due every month, according to LHDN’s CP38 payment schedule.

Why Do Employers Receive CP38 Instructions?

LHDN issues CP38 instructions for several reasons, including:

The employee has unpaid tax arrears from previous years.
The employee’s PCB deductions are not enough to cover their total tax liability.
LHDN identifies discrepancies in the employee’s declared vs. actual income.
The employee has additional income sources that were not taxed sufficiently.

With such reasons above, LDHN needs the employers to deduct the CP38 amount specified in the notice and submit it to LHDN accordingly.

How to Deduct and Remit CP38 Payments

Once an employer receives a CP38 directive from LHDN, they must take immediate action to comply with tax laws. Here’s what employers need to do:

1. Receiving and Processing CP38 Instructions

Once an employer receives a CP38 instruction for an employee, they must verify the details and check the outstanding tax amount stated in the directive.

2. Deducting the Correct Additional Tax Amount

Calculate and deduct the additional tax from the employee’s salary each month, as specified by LHDN.

This deduction is separate from PCB and must be recorded accordingly in payroll systems.

3. Making CP38 Payments to LHDN

Submit the deducted CP38 amount to LHDN before the due date. Payments can be made through several methods:

Online via FPX (MyTax Portal)
Internet banking (CIMB, Maybank, Public Bank, etc.)
Manual payment at LHDN branches or banks

How to Submit CP38 Payments Online

Method 1: Submit CP38 via e-PCB (LHDN Portal)

Go to e-PCB Portal https://e.hasil.gov.my
Login with Employer Credentials. Use the Employer’s Tax Number and registered password.
Select CP38 Payment. Navigate to the CP38 section. Upload or manually enter the employee’s CP38 deduction details.
Verify & Submit. Double-check the amounts. Submit the CP38 details to LHDN.
Make Payment via FPX. Select an online banking option. Complete the transaction.
Save Payment Receipt. Download and keep the e-Receipt as proof of submission.

Method 2: Direct Payment via ByrHASiL (FPX)

Go to ByrHASiL Portal https://byrhasil.hasil.gov.my
Select "PCB/CP38 Payment". Choose the CP38 category.
Enter Employer & Employee Details. Enter total CP38 deductions for the month.
Choose Payment Method (FPX). Use online banking or credit/debit card.
Confirm & Submit Payment. Ensure the payment is successful.
Download Payment Receipt. Keep a copy for reference & compliance.

Alternative: Manual Payment

If preferred, employers can pay via cheque, bank draft, or over the counter at:

LHDN payment counters
Bank agents like CIMB, Maybank, Public Bank (subject to availability)

Example of CP38 Deduction Calculation

Let's assume Ali is an employee who has an outstanding tax amount of RM3,000, and LHDN issues a CP38 directive to deduct RM500 per month from his salary.

Ali’s Salary Details

Basic Salary: RM6,000
Mandatory Deductions:
- EPF (11%): RM660
- SOCSO & EIS: RM50
- Monthly PCB (Tax): RM300
- CP38 Deduction: RM500
Net Salary After Deductions:

Description	Amount (RM)
Basic Salary	6,000
(-) EPF (11%)	660
(-) SOCSO & EIS	50
(-) PCB Tax	300
(-) CP38 Deduction	500
Net Salary	4,490

Key Notes:

CP38 is in addition to the monthly PCB (Potongan Cukai Berjadual).
LHDN will instruct the amount and duration of deductions.
Employer must remit CP38 by the 15th of the next month.

CP38 Deduction Letter Template for Notifying Employees

ABC SDN BHD

123, Jalan Damansara,
50490 Kuala Lumpur, Malaysia
Email: hr@abc.com | Phone: +603-1234 5678
[Date: 1st August 2024]

Ali bin Hassan
Senior Marketing Executive
Marketing Department
456, Jalan Ampang,
50450 Kuala Lumpur, Malaysia

Subject: Notification of CP38 Tax Deduction

Dear Ali bin Hassan,

We refer to a directive received from the Lembaga Hasil Dalam Negeri Malaysia (LHDN) regarding an additional tax deduction under CP38 applicable to your salary.

As per the instruction from LHDN, we are required to deduct a sum of RM500 per month from your salary starting August 2024 until further notice or full settlement of your outstanding tax of RM3,000.

Below is the deduction breakdown:

Description	Amount (RM)
Monthly Salary	6,000
(-) PCB Deduction	300
(-) CP38 Deduction	500
(-) EPF (11%)	660
(-) SOCSO & EIS	50
Net Salary After Deduction	4,490

This deduction is mandatory and will be remitted directly to LHDN on your behalf. If you have any concerns or wish to clarify your tax status, we advise you to contact LHDN directly at 1-800-88-5436 or visit the nearest LHDN branch.

For any HR-related concerns, feel free to reach out to Aisyah Rahman (HR Manager) at hr@abc.com.

Thank you for your understanding.

Best regards,
Farhan Lim
HR Manager
ABC SDN BHD

Penalties for Employers Who Fail to Deduct CP38

Failure to comply with CP38 instructions can lead to serious consequences, such as:

Fines of RM200 to RM20,000 per offense.
Legal action under Section 107(4) of the Income Tax Act 1967.
Possible imprisonment of up to 6 months for severe cases.

To avoid these penalties, process CP38 deductions correctly and submit payments on time.

FAQ for Employers

Is CP38 mandatory for employers?

Yes, once LHDN issues a CP38 instruction, employers must comply and deduct the additional tax from the employee’s salary.

How do I know if my employee has a CP38 order?

You will receive a formal CP38 notice from LHDN stating the employee’s outstanding tax amount and the required monthly deductions.

Can an employer deduct CP38 in installments?

Yes, CP38 is typically deducted in installments as per the schedule provided by LHDN. Employers cannot modify the deduction amount without approval from LHDN.

What happens if an employee resigns before the full CP38 payment?

If an employee leaves before their CP38 deductions are completed, the employer must notify LHDN. The employee remains responsible for settling any remaining tax balance directly with LHDN.

Where can I check and make CP38 payments?

You can check CP38 instructions and make payments via MyTax Portal (LHDN), internet banking, or LHDN branches.

Looking for New Employees? Offer the Right Benefit!

Many employees feel stressed about tax deductions like CP38 and managing their finances.

Without support, they may look for jobs with better financial guidance and benefits. When companies help employees understand tax matters and offer the right support, they feel valued, stay longer, and perform better.

Want a loyal and motivated team? Show you care by offering the right benefits. Post your job today and hire employees who grow with you!