Tax Law Change On Religious Bodies To Plug Loophole

KUALA LUMPUR : The recent change to tax exemption laws on religious bodies is intended to safeguard public donations by plugging a legal loophole, Finance Minister II Datuk Johari Abdul Ghani said.

Johari said the amendment to the Income Tax Act was needed to ensure that public donations to religious bodies are not used for profit-generation.

"Based on LHDN's experience, many of these religious bodies are actively involved in investment and some of them frequently buy and sell property by using the religious bodies' funds.

"They earned huge profit and some of them paid huge allowance to their committees," he told Malay Mail Online yesterday, referring to the Inland Revenue Board (IRB) by its Malay initials.

He gave his assurance, however, that donations to religious bodies will still be exempted from tax after the amendment.

"We just need to have a system to safeguard all the public donation to be used solely for the religious purposes and not for profit-making.

"If it is being used for profit-making, then such investment income should be properly taxed. In as far as donation from the public is concerned, it still remains tax exempt," he said.

"The amendment is to plug the loophole," he added.

He was weighing in on Parliament's recent approval of an amendment to paragraph 13(1)(b) of the Income Tax Act's Schedule 6, which provided for tax exemption for income received by non-profit religious organisations and religious institutions.

The change to paragraph 13(1)(b) of Schedule 6 of the Income Tax Act added on the requirement that the “contributions” received by religious bodies be meant solely for “charitable purposes” in order to qualify for tax exemption.

Tax experts previously told Malay Mail Online that all income received by religious bodies is currently exempted from tax based on paragraph 13(1)(b), but said religious bodies will have to start paying income tax from the assessment year of 2017 onwards as they will only enjoy a limited exemption after the amendment.

Yesterday, the IRB said the amendment is aimed at clearing up an alleged previous “confusion” among taxpayers on whether religious bodies automatically qualify for tax exemption under paragraph 13(1)(b) or had to seek approval for exemption under the law’s Section 44(6).

IRB said that the amendment now expressly provides for the automatic tax exemption on donations contributed by worshippers solely for the purpose of religious worship activities or the advancement of religion, adding that this exemption applies to all religious bodies.

The IRB also said that income arising from business or in the form of rental will not be eligible for exemption under Schedule 6 and will instead be taxable under the Income Tax Act.-malaymail