Bipartisan nod to amendment
Change in tax provisions for religious bodies passed without any objection to its interpretation
KUCHING: Amendment to the Income Tax Act was passed by the Senate on Thursday afternoon with no objections from both sides of the political divide.
The amendment was passed in Parliament on Nov 23 and debated in the Senate on Thursday.
Deputy Finance Minister Othman Aziz, who proposed the amendment in Parliament, was also the one who tabled it in the Senate.
DAP Lanang MP Alice Lau told The Borneo Post there was no confusion and no objection with regards to the interpretation of the amendment when it was read a second time in Parliament.
“To me, what the deputy finance minister was saying was that as long as an organisation was formed for religious purposes and did not engage solely in profit- making
To me, what the deputy finance minister was saying was that as long as an organisation was formed for religious purposes and did not engage solely in profit-making business, it would remain tax exempted. Alice Lau, Lanang MP
businesses, it would remain tax exempted,” she said
“After the amendment, religious institutions will still be taxexempted, unless they transform into profit-making entities.”
Based on that understanding, she and other DAP MPs did not object to the amendments.
“While there are indeed some who may use the name of religion to make profits and may operate as an organisation, the authority should be very cautious in making, interpreting and enforcing the law so that all law- abiding religious organisations can remain taxexempted and operate without worries of taxation.”
Lau added that the DAP would write to the Inland Revenue Board to seek clarifications for all religious bodies.
“Our understanding is that as long as the religious body is a charitable and non- profit making organisation, it will still be exempted from tax. We believe religious institutions are not affected by the amendments.”
Meanwhile, DAP Beruas MP Dato Ngeh Koo Ham said the amendment only clarified that for a religious institution or organisation that is not primarily non- profit or exclusively for religious worship or advancement of religion, then its income is taxable.
He said the status of religious institutions remained the same, that if they were primarily for religious, charitable and nonprofit purposes, then their income would be tax exempted.
“The amendment only involved those that are not primarily or not exclusively religious bodies.”
He cited the example of a religious institution that operated a hotel to let rooms to paying customers and not for the homeless, then the income derived from the hotel would be taxable under the amendments.
“For example, a school should be tax exempted. But if a school is running for profit, then it should pay tax,” he said.
On the case of a religious institution owning properties that it rented out to generate income, Ngeh, who is also Siniawan assemblyman, said if the income derived from property rental was channelled to support religious and charitable activities, then it should not be taxed.
Conversely, if the religious institution used the income for further investment to generate more income, then the income should be taxed.
However, a local charitable body was alarmed and had raised strong objections to the passing of the amendment.
Kuching Chinese Community Charitable Trust Board chairman Dr Chou Chii Ming argued that religious institutions such as churches, temples and charitable institutions such as old folk homes or daycare centres set up by them would be affected fi nancially.
While the parliamentarians believe that the tax exemption status for income of religious institutions and organisations will not be affected by the passing of the amendments to Income Tax Provisions, a reputable tax consultant believed the new amendment will mean that only income in respect of contribution received for charitable purposes is tax exempted and all other incomes are not tax exempted.
“The Parliament’s proposed amendment is to seek to provide that income received by a religious institution or organisation under subparagraph 13( 1) ( b) of the Schedule 6 solely for charitable purposes in the basis period for a year of assessment is exempt from tax as explicitly stated in the Explanatory Statement of the Bill.
“Interest and rental income are received from the investments of the religious institution. They are not contributions received. The word ‘contribution’ ordinarily means a gift or payment to a common fund. That is received from outside the religious institution,” the tax consultant who declined to be named told The Borneo Post.
When asked on the implications of deleting the words “other than dividend income” in 2007 to paragraph 13(10 (taking effect from Jan 1 2014), the tax consultant explained:
“Before amendment to delete the words ‘other than dividends’, all incomes received by the religious institutions are tax exempted except dividend income received by the institutions.
“To tax only the dividend income is for the purposes not to make refund to the institution the tax which had been deducted at source upon payment of the dividend by the paying company.
“The subsequent deletion of the words ‘other than dividend’ is because with effect from year of assessment 2008 there is no more tax deducted at source from the payment of dividend by the paying company to the recipient. The dividend is taxed in the company but is no more subject to tax in the hand of the recipient,” he said.
Before amendment, Schedule 6 Paragraph 13 reads as follows: 13 The income of – ( b) a religious institution or organisation which is not operated or conducted primarily for profit and which is established in Malaysia exclusively for the purposes of religious worship or the advancement of religion.
He explained that the word ‘income’ here means all types of income received by the religious institution are tax exempted.
After the proposed amendment Schedule 6 Para 13 ( b) becomes as follows: 13. The income of – ( b) a religious institution or organisation in respect of any contribution received for charitable purposes in the basis year for a year of assessment provided such institution or organisation is not operated or conducted primarily for profit and is established in Malaysia exclusively for the purpose of religious worship or the advancement of religion.
The tax consultant said in his view the adjective phrase “in respect of any contribution received for charitable purposes” is qualifying the word ‘income’.
“The tax law must be interpreted strictly and in compliance with the intention of the Parliament.
“From the Explanation Statement , the intention of the Parliament is very clear from the word ‘solely’ that the Parliament only allow tax exemption in respect of the income of contribution received for charitable purposes,” he concluded.
The tax consultant lamented that the second reading of the Bill has been passed by the Senate on Thursday ( Dec 15) and it might be too late to get the bill amended.
“However, since the royal consent of the Bill has not yet been obtained and gazetted, I think if the tax implication arising from such proposed amendment can be widely made known to draw the attention of the Government, there may still a chance to urge the Government to introduce a supplementary Bill to get paragraph 13(1)( b) rephrased to avoid taxing God’s money/fund which are used for charitable purposes benefiting all Malaysians irrespective of races, religions and cultures as have given tax exemption in all the past years,” he suggested.