KUCHING: Paragraph 13(1)(b) of Schedule 6 of the Income Tax Act 1967 which provides for incomes of religious institutions to be exempted from income tax that was passed by Parliament under the Finance Act 2017 (Act 785) was given the royal assent on Jan 9, and gazetted on Jan 16.
A senior tax consultant, who told The Borneo Post this yesterday, said such clause would come into effect from year of assessment 2017 and subsequent years of assessment.
With this approval, the new approved Paragraph 13(1)(b) reads as follows: “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.”
He said that Second Finance Minister Datuk Johari Abdul Ghani had very clearly clarified that he had agreed to issue an exemption order under Section 127 of the Income Tax Act 1967 to exempt all income of religious institutions registered under The Registry of Societies Malaysia or under any written law that governs these institutions in the media release by Ministry of Finance on Jan 10.
“Reading the above media release, it is pertinent to note that the word ‘income’ is in the singular form. Does ‘all income’ means to include all types of incomes received and earned by the religious institutions are to be exempted from income tax?”
The senior tax consultant also considered the following wordings in newly approved paragraph 13(1)(b) “in respect of any contribution received for charitable purposes in the basis year for a year of assessment” would create confusion to the intention of the government.
“Still remaining therein, it is my humble view and concern that when the exemption order is tabled to the Dewan Rakyat, it must contain the following important phrase: ‘For the purposes of this Order notwithstanding the provisions of Schedule 6 to the Act’.”
The senior tax consultant said in the absence of the above phrase/clause, it might be interpreted by the court that the exemption order to exempt all incomes of religious institutions cannot override the provision of the main Act, such as Paragraph 13(1)(b) of Schedule 6.
“This is because the exemption order does not say ‘notwithstanding the provisions of Schedule 6 to the Act’.
He said from the the perusal of Paragraph 13(1)(b) of Schedule 6, it meant explicitly that “the income of the religious institution in respect of any contribution received in the basis year for a year of assessment” was only to be exempted from income tax and it did not cover all other incomes earned and received by the religious institution, such as interests, rental income, earned by the religious institution.
He said ideally, the minister should hold a dialogue session to hear the views of all the stakeholders on the draft exemption order before making it official.
“Hope my above humble view will draw the attention of all our elected members of parliament and leaders of all religious institutions when reading and studying the exemption order later.