The second finance minister has issued an order effectively reversing a controversial legal amendment that would have compelled religious bodies to start paying income tax.
In the Income Tax (Exemption) Order 2017 gazetted yesterday by the federal government, the minister exercised his discretionary powers under the Income Tax Act to exempt religious bodies from paying income tax.
“This Order shall have effect from the year of assessment 2017,” read the order made by Second Finance Minister Datuk Seri Johari Abdul Ghani on February 7.
According to the directive, the minister exempts religious institutions or organisations in the basis period for a year of assessment from both paying tax “in respect of gross income derived from all sources” and also from furnishing a tax return form under Section 77 of the Income Tax Act.
To qualify for the income tax exemption, the order requires religious institutions or organisations to have been “established in Malaysia exclusively for the purpose of religious worship or the advancement of religion and is not operated or conducted primarily for profit”.
Religious bodies are also required to be registered with the Registrar of Societies (RoS) or under any written law governing such bodies, the order said.
While Section 127(3)(b) of the Income Tax Act empowers the finance minister to make statutory orders granting tax exemption to any class of persons, Section 127(4) requires such orders to be presented to Dewan Rakyat.
The next Dewan Rakyat meeting ― which is also the first for this year ― will begin on March 6 and end on April 6.
Last year, Parliament approved 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 exempted from tax based on the unamended paragraph 13(1)(b), but said religious bodies would have to start paying income tax from the assessment year of 2017 onwards as they will only enjoy a limited exemption after the amendment.
Last December, Johari told Malay Mail Online that the change to tax exemption laws on religious bodies was intended to safeguard public donations by plugging a legal loophole and ensure they were used solely for religious purposes, instead of profit-generation.
On January 9, Deputy Finance Minister Datuk Othman said the amendment, which applied to both Muslim and non-Muslim religious bodies, would address misuse of public donations, including concerns over the funding of militant activities and certain individuals earning over RM10,000 a month who did cite their work with tax-exempt religious bodies to avoid paying income tax.
On January 10, Johari said the ministry will be issuing an order soon to exempt all registered religious bodies from paying income tax.
Source : @ Malay Mail Online