The ESG tax deduction was first announced during the 2024 Malaysian Budget to support businesses adopting Environmental, Social, and Governance (ESG) practices.

But let’s be real. By the time the official Rules were gazetted on 23 June 2025, many taxpayers already closed their Year of Assessment (YA) 2024 files. Some even filed their tax returns without this deduction.

Here’s the key takeaway:

You may still revise your tax returns to claim this deduction but don’t wait too long.

Quick summary of the ESG deduction:
• Up to RM50,000 per year for qualifying ESG-related expenses
• Applicable to financial institutions, companies, Labuan companies, SMEs, and micro enterprises
• Must be a Malaysian tax resident and expenses must relate to your business income

What expenses qualify:

1. For Banks & Listed Companies:
   ESG validation, certification, software, training, consultant fees
2. For Companies & Labuan Entities:
   Tax Corporate Governance reporting, independent reviews, transfer pricing documentation
3. For SMEs & Micro Enterprises:
   Customised e-invoicing software and external service provider fees (but not planning costs or MyInvois Portal fees)

But take note:
• Capped at RM50,000 per year
• No double claims allowed under other tax rules
• Applies for YA 2024 to YA 2027 only

I find the short 3-year window interesting. Every time clients ask why transfer pricing documents are not tax deductible, I struggle to explain.

But now, TP documentation is deductible — but only under this narrow ESG incentive, and subject to strict limits.

Final thoughts:

It’s a good incentive, but as always, tax deductions come with conditions, technicalities, and paperwork.

Review your eligibility, prepare the right documents, and if needed, revise your tax filings early especially if you already closed your 2024 accounts before the gazette date.