# Entertainment Expenses: 50 Per Cent or 100 Per Cent?

> A decision table for paragraph 39(1)(l) of the Income Tax Act 1967 — the eight statutory provisos that lift entertainment expenditure from half to full deduction, and the two prior tests that decide whether it is deductible at all.

- Category: taxation
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/taxation/entertainment-expenses

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Almost every Malaysian tax computation halves the entertainment line and moves on. That is wrong in both directions. Some of what is halved should be disallowed in full, and a good deal of it should not be halved at all.

Paragraph 39(1)(l) of the Income Tax Act 1967 disallows *a sum equal to fifty percent* of expenses incurred in the provision of entertainment. Attached to it are **eight provisos, numbered (i) to (viii)** — not six, as commonly stated. Public Ruling No. 4/2015 refers to them throughout as provisos (i) to (viii).

## The three questions, in order

**1. Is it entertainment?** Section 18 defines entertainment as the provision of food, drink, recreation or hospitality of any kind, or of accommodation or travel in connection with facilitating such entertainment, by a person or an employee in connection with the business. From the year of assessment 2014 the definition also catches entertainment provided for the purpose of promotion. If the expense is not entertainment, paragraph 39(1)(l) never engages — promotion without an entertainment element is fully deductible under s.33(1).

In *NV Alliance Sdn Bhd v KPHDN* the Court of Appeal held that cash incentives paid to sales agents are not entertainment. Reading *hospitality of any kind* alongside *food, drink, recreation*, the court applied the noscitur a sociis and ejusdem generis rules and confined the general words to the same genus as the specific ones. Cash does not belong to it.

**2. Is it wholly and exclusively incurred under s.33(1)?** If not, nothing is deductible. Public Ruling No. 4/2015 gives two examples that catch people out: a microwave oven given to a customer as a wedding gift, and a lunch bought for a *potential* customer — both refused entirely, not halved.

**3. Does a proviso apply?** If yes, 100 per cent. If no, 50 per cent.

## The decision table

| Proviso | Category | Watch for |
| --- | --- | --- |
| (i) | Entertainment for employees | Fails if the provision is incidental to entertaining others — but suppliers attending a staff annual dinner are themselves incidental, and the whole cost stands |
| (ii) | Entertainment provided for payment in the ordinary course of a business that provides entertainment for payment | Hotel cultural shows, in-flight meals |
| (iii) | Promotional gifts at trade or industrial exhibitions **held outside Malaysia** to promote exports | Overseas only |
| (iv) | Promotional samples of the products of the business | Must be the business's own products |
| (v) | Entertainment for cultural or sporting events **open to the public**, wholly to promote the business | Members-only events fail; the ruling states a National Day parade is not a cultural event |
| (vi) | Promotional gifts **within Malaysia** carrying a conspicuous advertisement or logo of the business | Need not be the business's own product, but must go to the public non-discriminatorily — expensive gifts to selected persons fail |
| (vii) | Entertainment related **wholly to sales** arising from the business | Product launches, redemption vouchers, lucky draw prizes, dealer incentive trips, refreshments while a customer waits |
| (viii) | Leave passage for a yearly event **within Malaysia** involving the employer, employee and immediate family | Travel cost falls here; food and accommodation on the same trip fall under proviso (i) |

Anything outside the table is halved: a dinner for suppliers, a festive hamper to maintain a relationship, flowers for a customer's new branch.

## Common mistakes

**Halving something that should be disallowed entirely.** Entertaining a prospect who is not yet a customer fails s.33(1) before paragraph 39(1)(l) is reached.

**Treating the sales-related proviso as unlimited.** Proviso (vii) requires the entertainment to relate *wholly* to sales arising from the business. Vouchers and points-based gifts are entertainment only when the customer redeems them.

**Confusing the two gift provisos.** Overseas trade fairs sit in proviso (iii); logo gifts inside Malaysia sit in proviso (vi). A non-logo gift given in Malaysia falls in neither and is halved.

**Adding back cash incentives.** *NV Alliance* removed those from paragraph 39(1)(l) altogether, and Public Ruling No. 4/2015 separately notes that cash does not fall within the section 18 definition.

**Splitting a family day incorrectly.** The ruling divides one trip between proviso (viii) for the travel and proviso (i) for the food, drink and accommodation — both fully deductible, but for different reasons.

## What's next

Reclassify the entertainment ledger by proviso before halving it, and keep the evidence that fixes the category — the guest list for a staff dinner, the artwork showing the logo on a promotional gift, the public advertising for a sponsored event. Then check the rest of section 39, because entertainment is one line of a much longer prohibition list.

## Sources

- Income Tax Act 1967 (Act 53), reprint as at 21 May 2024 — https://www.hasil.gov.my/wp-content/uploads/20240521-akta-cukai-pendapatan-1967-akta-53.pdf (LHDN)
- Public Ruling No. 4/2015 — Entertainment Expense — https://www.hasil.gov.my/wp-content/uploads/PR_4_2015.pdf (LHDN)
- NV Alliance Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri — Court of Appeal judgment — https://www.hasil.gov.my/wp-content/uploads/COA_2011_NV_ALLIANCE.pdf (LHDN)

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